Docstoc

grouponpdf

Document Sample
grouponpdf Powered By Docstoc
					groupon.htm                                                                                                                      6/2/11 12:35 PM



 S-1 1 a2203913zs-1.htm S-1

 Use these links to rapidly review the document
 TABLE OF CONTENTS
 Table of Contents

 Table of Contents

                               As filed with the Securities and Exchange Commission on June 2, 2011

                                                                                                         Registration No. 333-



                               SECURITIES AND EXCHANGE COMMISSION
                                                      Washington, D.C. 20549




                                                           FORM S-1
                                                 REGISTRATION STATEMENT
                                                          UNDER
                                                 THE SECURITIES ACT OF 1933




                                                         Groupon, Inc.
                                         (Exact name of Registrant as specified in its charter)




                 Delaware                                         7379                                      27-0903295
       (State or other jurisdiction of               (Primary Standard Industrial                        (I.R.S. Employer
      incorporation or organization)                 Classification Code Number)                      Identification Number)

                                                600 West Chicago Avenue, Suite 620
                                                       Chicago, Illinois 60654
                                                           312-676-5773
         (Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices)




                                                          Andrew D. Mason
                                                       Chief Executive Officer
                                                            Groupon, Inc.
                                                600 West Chicago Avenue, Suite 620
                                                       Chicago, Illinois 60654
                                                            312-676-5773
                 (Name, address, including zip code, and telephone number, including area code, of agent for service)




                                                              Copies to:

                       Steven J. Gavin, Esq.                                                 Peter M. Astiz, Esq.
                     Matthew F. Bergmann, Esq.                                             Gregory M. Gallo, Esq.
                      Winston & Strawn LLP                                                  Jason C. Harmon, Esq.
                      35 West Wacker Drive                                                  DLA Piper LLP (US)
                      Chicago, Illinois 60601                                              2000 University Avenue
                           312-558-5600                                                East Palo Alto, California 94303
                                                                                                650-833-2036




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                    Page 1 of 269
groupon.htm                                                                                                                                       6/2/11 12:35 PM




     Approximate date of commencement of proposed sale to the public:                As soon as practicable after this Registration Statement
 becomes effective.




      If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415
 under the Securities Act, check the following box. o

       If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check
 the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same
 offering. o

        If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and
 list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

        If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and
 list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

      Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
 reporting company. See definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of
 the Exchange Act. (Check one):

 Large accelerated filer o                                                                                                  Accelerated filer o

 Non-accelerated filer ý (Do not check if a smaller reporting company)                                         Smaller reporting company o

                                                CALCULATION OF REGISTRATION FEE


                                                                    Proposed Maximum
                           Title of Each Class of                       Aggregate                          Amount of
                         Securities to be Registered                Offering Price (1)(2)                Registration Fee
              Class A Common Stock, $0.0001 par
                value                                                 $750,000,000                          $87,075

              (1)     Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) under
                      the Securities Act of 1933, as amended.

              (2)     Includes shares the underwriters have the option to purchase to cover over-allotments, if any.




      The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective
 date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall
 thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement
 shall become effective on such date as the Commission acting pursuant to said Section 8(a) may determine.




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                                     Page 2 of 269
groupon.htm                                                                                                                                     6/2/11 12:35 PM


 Table of Contents

 PROSPECTUS (Subject to Completion)
 Issued June 2, 2011
 The information in this preliminary prospectus is not complete and may be changed. We and the selling stockholders may not sell
 these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary
 prospectus is not an offer to sell these securities and we and the selling stockholders are not soliciting offers to buy these securities in
 any state where the offer or sale is not permitted.


                                                                             Shares




                                                      CLASS A COMMON STOCK



 Groupon, Inc. is offering         shares of its Class A common stock and the selling stockholders are offering            shares
 of Class A common stock. We will not receive any proceeds from the sale of shares by the selling stockholders. This is our initial
 public offering and no public market currently exists for our shares. We anticipate that the initial public offering price of our
 Class A common stock will be between $          and $       per share.




 We expect to apply to list our Class A common stock on the                  under the symbol GRPN.




 Investing in our Class A common stock involves risks. See "Risk Factors" beginning on page 11.



                                                             PRICE $       A SHARE




                                                                   Underwriting
                                                  Price to         Discounts and             Proceeds to         Proceeds to
                                                  Public           Commissions                Company       Selling Stockholders
                Per Share                         $                    $                      $                   $
                Total                         $                    $                     $                    $

 Groupon, Inc. and the selling stockholders have granted the underwriters the right to purchase up to an additional                shares of
 Class A common stock to cover over-allotments.

 The Securities and Exchange Commission and state securities regulators have not approved or disapproved these securities, or
 determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 The underwriters expect to deliver the shares of Class A common stock to purchasers on                      , 2011.




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                                   Page 3 of 269
groupon.htm                                                                               6/2/11 12:35 PM



 MORGAN STANLEY                                                    GOLDMAN, SACHS & CO.

                                                   CREDIT SUISSE
               , 2011




file:///Users/arikhesseldahl/Desktop/groupon.htm                                             Page 4 of 269
groupon.htm                                                                                                                                   6/2/11 12:35 PM


 Table of Contents


                                                       TABLE OF CONTENTS

                                                                                                                        Page
              Prospectus Summary                                                                                           1
              Risk Factors                                                                                                11
              Special Note Regarding Forward-Looking Statements and Industry Data                                         32
              Use of Proceeds                                                                                             34
              Dividend Policy                                                                                             34
              Capitalization                                                                                              35
              Dilution                                                                                                    38
              Selected Consolidated Financial and Other Data                                                              40
              Management's Discussion and Analysis of Financial Condition and Results of Operations                       44
              Business                                                                                                    68
              Management                                                                                                  86
              Executive Compensation                                                                                      93
              Related Party Transactions                                                                                 111
              Principal and Selling Stockholders                                                                         117
              Description of Capital Stock                                                                               120
              Material United States Federal Tax Considerations                                                          124
              Shares Eligible for Future Sale                                                                            130
              Underwriting                                                                                               132
              Legal Matters                                                                                              138
              Experts                                                                                                    138
              Where You Can Find Additional Information                                                                  138
              Index to Consolidated Financial Statements                                                                 F-1




     You should rely only on the information contained in this prospectus or in any free writing prospectus filed with the Securities
 and Exchange Commission. Neither we, the selling stockholders nor the underwriters have authorized anyone to provide you with
 additional or different information. We and the selling stockholders are offering to sell, and seeking offers to buy, our Class A
 common stock only in jurisdictions where offers and sales are permitted. The information in this prospectus or any free writing
 prospectus is accurate only as of its date, regardless of its time of delivery or any sale of shares of our Class A common stock.

      Until            , 2011 (25 days after the commencement of this offering), all dealers that buy, sell or trade shares of our
 Class A common stock, whether or not participating in this offering, may be required to deliver a prospectus. This delivery
 requirement is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to
 their unsold allotments or subscriptions.

      For investors outside the United States: Neither we, the selling stockholders nor any of the underwriters have done anything that
 would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required,
 other than the United States. You are required to inform yourself about and to observe any restrictions relating to the offering of the
 shares of Class A common stock and the distribution of this prospectus outside of the United States.




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                                 Page 5 of 269
groupon.htm                                                                                                                              6/2/11 12:35 PM


 Table of Contents


                                             LETTER FROM ANDREW D. MASON

                                                                                                                         June 1, 2011

 Dear Potential Stockholders,

     On the day of this writing, Groupon's over 7,000 employees offered more than 1,000 daily deals to 83 million subscribers across
 43 countries and have sold to date over 70 million Groupons. Reaching this scale in about 30 months required a great deal of
 operating flexibility, dating back to Groupon's founding.

       Before Groupon, there was The Point—a website launched in November 2007 after my former employer and one of my co-
 founders, Eric Lefkofsky, asked me to leave graduate school so we could start a business. The Point is a social action platform that
 lets anyone organize a campaign asking others to give money or take action as a group, but only once a "tipping point" of people
 agree to participate.

      I started The Point to empower the little guy and solve the world's unsolvable problems. A year later, I started Groupon to get
 Eric to stop bugging me to find a business model. Groupon, which started as a side project in November 2008, applied The Point's
 technology to group buying. By January 2009, its popularity soaring, we had fully shifted our attention to Groupon.

     I'm writing this letter to provide some insight into how we run Groupon. While we're looking forward to being a public company,
 we intend to continue operating according to the long-term focused principles that have gotten us to this point. These include:

 We aggressively invest in growth.

      We spend a lot of money acquiring new subscribers because we can measure the return and believe in the long-term value of the
 marketplace we're creating. In the past, we've made investments in growth that turned a healthy forecasted quarterly profit into a
 sizable loss. When we see opportunities to invest in long-term growth, expect that we will pursue them regardless of certain short-
 term consequences.

 We are always reinventing ourselves.

      In our early days, each Groupon market featured only one deal per day. The model was built around our limitations: We had a
 tiny community of customers and merchants.

      As we grew, we ran into the opposite problem. Overwhelming demand from merchants, with nine-month waiting lists in some
 markets, left merchant demand unfilled and contributed to hundreds of Groupon clones springing up around the world. And our
 customer base grew so large that many of our merchants had an entirely new problem: Struggling with too many customers instead of
 too few.

       To adapt, we increased our investment in technology and released deal targeting, enabling us to feature different deals for
 different subscribers in the same market based on their personal preferences. In addition to providing a more relevant customer
 experience, this helped us to manage the flow of customers and opened the Groupon marketplace to more merchants, in turn
 diminishing a reason for clones to exist.

     Today, we are pursuing models of reinvention that would not be possible without the critical mass of customers and merchants
 we have achieved. Groupon NOW, for example, allows customers to pull deals on demand for immediate redemption, and helps keep
 merchants bustling throughout the day.

      Expect us to make ambitious bets on our future that distract us from our current business. Some bets we'll get right, and others
 we'll get wrong, but we think it's the only way to continuously build disruptive products.

 We are unusual and we like it that way.

      We want the time people spend with Groupon to be memorable. Life is too short to be a boring company. Whether it's with a
 deal for something unusual, such as fire dancing classes, or a marketing




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                            Page 6 of 269
groupon.htm                                                                                                                                 6/2/11 12:35 PM


 Table of Contents




 campaign such as Grouspawn(1), we seek to create experiences for our customers that make today different enough from yesterday to
 justify getting out of bed. While weighted toward the measurable, our decision-making process also considers what we feel in our gut
 to be great for our customers and merchants, even if it can't be quantified over a short time horizon.


 (1)    Grouspawn is a foundation we created that awards college scholarships to babies whose parents used a Groupon on their first date.


 Our customers and merchants are all we care about.

      After selling out on our original mission of saving the world to start hawking coupons, in order to live with ourselves, we vowed
 to make Groupon a service that people love using. We set out to upturn the stigmas created by traditional discounting services,
 trusting that nothing would be as crucial to our long-term success as happy customers and merchants. We put our phone number on
 our printed Groupons and built a huge customer service operation, manned in part with members of Chicago's improv community.
 We developed a sophisticated, multi-stage process to pick deals from high quality merchants with vigorously fact-checked editorial
 content. We built a dedicated merchant services team that works with our merchant partners to ensure satisfaction. And we have a
 completely open return policy, giving customers a refund if they ever feel like Groupon let them down. We do these things to make
 our customers and merchants happy, knowing that market success would be a side effect.

     We believe that when once-great companies fall, they don't lose to competitors, they lose to themselves—and that happens when
 they stop focusing on making people happy. As such, we do not intend to be reactive to competitors. We will watch them, but we
 won't distract ourselves with decisions that aren't designed primarily to make our customers and merchants happy.

 We don't measure ourselves in conventional ways.

      There are three main financial metrics that we track closely. First, we track gross profit, which we believe is the best proxy for
 the value we're creating. Second, we measure free cash flow—there is no better metric for long-term financial stability. Finally, we
 use a third metric to measure our financial performance—Adjusted Consolidated Segment Operating Income, or Adjusted CSOI. This
 metric is our consolidated segment operating income before our new subscriber acquisition costs and certain non-cash charges; we
 think of it as our operating profitability before marketing costs incurred for long-term growth.




       If you're thinking about investing, hopefully it's because, like me, you believe that Groupon is better positioned than any
 company in history to reshape local commerce. The speed of our growth reflects the enormous opportunity before us to create a more
 efficient local marketplace. As with any business in a 30-month-old industry, the path to success will have twists and turns, moments
 of brilliance and other moments of sheer stupidity. Knowing that this will at times be a bumpy ride, we thank you for considering
 joining us.




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                               Page 7 of 269
groupon.htm                                                                                                                             6/2/11 12:35 PM


 Table of Contents


                                                   PROSPECTUS SUMMARY

      This summary highlights information contained elsewhere in this prospectus and does not contain all of the information you
 should consider in making your investment decision. Before investing in our Class A common stock, you should carefully read this
 entire prospectus, including our consolidated financial statements and the related notes and the information set forth under the
 headings "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations," in each
 case included elsewhere in this prospectus. Except where the context requires otherwise, in this prospectus the terms "Company,"
 "Groupon," "we," "us" and "our" refer to Groupon, Inc., a Delaware corporation, and where appropriate, its direct and indirect
 subsidiaries.


                                                         GROUPON, INC.

      Groupon is a local e-commerce marketplace that connects merchants to consumers by offering goods and services at a discount.
 Traditionally, local merchants have tried to reach consumers and generate sales through a variety of methods, including the yellow
 pages, direct mail, newspaper, radio, television and online advertisements, promotions and the occasional guy dancing on a street
 corner in a gorilla suit. By bringing the brick and mortar world of local commerce onto the internet, Groupon is creating a new way
 for local merchants to attract customers and sell goods and services. We provide consumers with savings and help them discover
 what to do, eat, see and buy in the places where they live and work.

      We started Groupon in November 2008 and believe the growth of our business demonstrates the power of our solution and the
 size of our market opportunity:

        •       We increased our revenue from $3.3 million in the second quarter of 2009 to $644.7 million in the first quarter of
                2011.

        •       We expanded from five North American markets as of June 30, 2009 to 175 North American markets and 43 countries
                as of March 31, 2011.

        •       We increased our subscriber base from 152,203 as of June 30, 2009 to 83.1 million as of March 31, 2011.

        •       We increased the number of merchants featured in our marketplace from 212 in the second quarter of 2009 to 56,781
                in the first quarter of 2011.

        •       We sold 116,231 Groupons in the second quarter of 2009 compared to 28.1 million Groupons in the first quarter of
                2011.

        •       We grew from 37 employees as of June 30, 2009 to 7,107 employees as of March 31, 2011.

       Each day we email our subscribers discounted offers for goods and services that are targeted by location and personal
 preferences. Consumers also access our deals directly through our websites and mobile applications. A typical deal might offer a $20
 Groupon that can be redeemed for $40 in value at a restaurant, spa, yoga studio, car wash or other local merchant. Customers
 purchase Groupons from us and redeem them with our merchants. Our revenue is the purchase price paid by the customer for the
 Groupon. Our gross profit is the amount of revenue we retain after paying an agreed upon percentage of the purchase price to the
 featured merchant.

 Our Advantage

       Customer experience and relevance of deals. We are committed to providing a great customer experience and maintaining the
 trust of our customers. We use our technology and scale to target relevant deals based on individual subscriber preferences. As we
 increase the volume of transactions through our marketplace, we increase the amount of data that we have about deal performance and
 customer interests.

                                                                  1




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                           Page 8 of 269
groupon.htm                                                                                                                               6/2/11 12:35 PM


 Table of Contents

 This data allows us to continue to improve our ability to help merchants design the most effective deals and deliver deals to
 customers that better match their interests.

      Merchant scale and quality. In the first quarter of 2011, we featured deals from over 56,000 merchants worldwide across over
 140 categories of goods and services. Our salesforce of over 3,500 sales representatives enables us to work with local merchants in
 175 North American markets and 43 countries. We draw on the experience we have gained in working with merchants to evaluate
 prospective merchants based on quality, location and relevance to our subscribers. We maintain a large base of prospective merchants
 interested in our marketplace, which enables us to be more selective and offer our subscribers higher quality deals. Increasing our
 merchant base also increases the number and variety of deals that we offer to consumers, which we believe drives higher subscriber
 and user traffic, and in turn promotes greater merchant interest in our marketplace.

     Brand. We believe we have built a trusted and recognizable brand by delivering a compelling value proposition to consumers
 and merchants. A benefit of our well recognized brand is that a substantial portion of our subscribers in our established markets is
 acquired through word-of-mouth. We believe our brand is trusted due to our dedication to our customers and our significant
 investment in customer satisfaction.

 Our Strategy

      Our objective is to become an essential part of everyday local commerce for consumers and merchants. Key elements of our
 strategy include the following:

      Grow our subscriber base. We have made significant investments to acquire subscribers through online marketing initiatives.
 Our subscriber base has also increased by word-of-mouth. Our investments in subscriber growth are driven by the cost to acquire a
 subscriber relative to the profits we expect to generate from that subscriber over time. For example, we spent $18.0 million in online
 marketing expense to acquire North American subscribers in the second quarter of 2010 and generated $61.7 million in gross profit
 from this group of subscribers in the four quarters ended March 31, 2011. See "Business—Subscriber Economics." Our goal is to
 retain existing and acquire new subscribers by providing more targeted and real-time deals, delivering high quality customer service
 and expanding the number and categories of deals we offer.

         Grow the number of merchants we feature. To drive merchant growth, we have expanded the number of ways in which
 consumers can discover deals through our marketplace. For example, to better target subscribers, in February 2011, we launched Deal
 Channels, which aggregates daily deals from the same category. We adjust the number and variety of products we offer merchants
 based on merchant demand in each market. We have also made significant investments in our salesforce, which builds merchant
 relationships and local expertise. Our merchant retention efforts are focused on providing merchants with a positive experience by
 offering targeted placement of their deals to our subscriber base, high quality customer service and tools to manage deals more
 effectively.

       Increase the number and variety of our products through innovation. We have launched a variety of new products in the past
 12 months and we plan to continue to launch new products to increase the number of subscribers and merchants that transact business
 through our marketplace. As our local e-commerce marketplace grows, we believe consumers will use Groupon not only as a
 discovery tool for local merchants, but also as an ongoing connection point to their favorite merchants.

      Expand with acquisitions and business development partnerships. Since May 2010, we have made 13 acquisitions and we have
 entered into several agreements with local partners to expand our international presence. We have also signed partnership agreements
 with companies such as eBay, Microsoft, Yahoo and Zynga, pursuant to which these partners display, promote and distribute our deals
 to

                                                                   2




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                             Page 9 of 269
groupon.htm                                                                                                                                6/2/11 12:35 PM


 Table of Contents



 their users in exchange for a share of the revenue generated from our deals. We intend to continue to expand our business with
 strategic acquisitions and business development partnerships.

 Our Metrics

      We measure our business with several financial metrics. The key metrics are gross profit, adjusted consolidated segment
 operating income, or Adjusted CSOI, and free cash flow. Adjusted CSOI and free cash flow are non-GAAP financial measures. See
 "—Summary Consolidated Financial and Other Data—Non-GAAP Financial Measures" for a reconciliation of these measures to the
 most applicable financial measures under GAAP.

     We believe gross profit is an important indicator for our business because it is a reflection of the value of our service to our
 merchants. In 2010 and the first quarter of 2011, we generated gross profit of $280.0 million and $270.0 million, respectively.

     We believe Adjusted CSOI is an important measure of the performance of our business as it excludes expenses that are non-cash
 or otherwise not indicative of future operating expenses. In 2010 and the first quarter of 2011, we generated Adjusted CSOI of
 $60.6 million and $81.6 million, respectively.

      We believe free cash flow is an important indicator for our business because it measures the amount of cash we generate after
 spending on marketing, wages and benefits, capital expenditures and other items. Free cash flow also reflects changes in working
 capital. In 2010 and the first quarter of 2011, we generated free cash flow of $72.2 million and $7.0 million, respectively.

 Our Risks

     Our business is subject to a number of risks of which you should be aware before making an investment decision. These risks are
 discussed more fully under the caption "Risk Factors," and include but are not limited to the following:

        •       we may not maintain the revenue growth that we have experienced since inception;

        •       we have experienced rapid growth over a short period in a new market we have created and we do not know whether
                this market will continue to develop or whether it can be maintained;

        •       we base our decisions regarding investments in subscriber acquisition on assumptions regarding our ability to generate
                future profits that may prove to be inaccurate;

        •       we have incurred net losses since inception and we expect our operating expenses to increase significantly in the
                foreseeable future;

        •       if we fail to retain our existing subscribers or acquire new subscribers, our revenue and business will be harmed;

        •       if we fail to retain existing merchants or add new merchants, our revenue and business will be harmed;

        •       our business is highly competitive and competition presents an ongoing threat to the success of our business;

        •       if we are unable to recover subscriber acquisition costs with revenue and gross profit generated from those subscribers,
                our business and operating results will be harmed;

        •       if we are unable to maintain favorable terms with our merchants, our gross profit may be adversely affected; and

        •       our operating cash flow and results of operations could be adversely impacted if we change our merchant payment
                terms or our revenue does not continue to grow.

                                                                   3




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                            Page 10 of 269
groupon.htm                                                                                                                           6/2/11 12:35 PM


 Table of Contents

 Corporate Information

      Our principal executive offices are located at 600 West Chicago Avenue, Suite 620, Chicago, Illinois 60654, and our telephone
 number at this address is (312) 676-5773. Our website is www.groupon.com. Information contained on our website is not a part of
 this prospectus.

     Groupon®, Groupon NOW, CityDeal, Grouspawn and the Groupon logo are trademarks of Groupon, Inc. in the United States or
 other countries. This prospectus also includes other trademarks of Groupon and trademarks of other persons.

                                                                 4




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                       Page 11 of 269
groupon.htm                                                                                                                                      6/2/11 12:35 PM


 Table of Contents


                                                             THE OFFERING

               Class A common stock
                 offered

                 By us                                shares

                 By the selling
                   stockholders                       shares

                   Total                              shares

               Class A common stock to
                 be outstanding after
                 this offering                        shares

               Class B common stock to
                 be outstanding after
                 this offering                        shares

                   Total shares of
                     common stock to
                     be outstanding
                     after this offering              shares

               Use of proceeds              We expect our net proceeds from this offering will be approximately
                                            $      million. We plan to use the net proceeds to us from this offering for
                                            working capital and other general corporate purposes, which may include the
                                            acquisition of other businesses, products or technologies; however, we do not
                                            have any commitments for any acquisitions at this time. We will not receive
                                            any of the proceeds from the sale of shares of Class A common stock by the
                                            selling stockholders. See "Use of Proceeds."

               Risk factors                 You should read the "Risk Factors" section of this prospectus for a discussion
                                            of factors to consider carefully before deciding to invest in shares of our
                                            common stock.

               Proposed           symbol "GRPN"




      The number of shares of our Class A common stock that will be outstanding after this offering is based on 296,140,145 shares
 outstanding at March 31, 2011, and excludes:

         •       1,199,988 shares of Class A common stock issuable upon the conversion of our Class B common stock that will be
                 outstanding after this offering;

         •       12,305,008 shares of Class A common stock issuable upon the exercise of stock options outstanding as of March 31,
                 2011 at a weighted average exercise price of $2.23 per share;

         •       600,000 shares of Class A common stock issuable upon the vesting of performance stock units granted in connection
                 with certain of our acquisitions;

         •       2,649,856 shares of Class A common stock issuable upon the vesting of restricted stock units granted under our 2010
                 Plan; and

         •       1,288,376 shares of Class A common stock available for additional grants under our 2010 Plan.

      Prior to the closing of this offering, we intend to recapitalize all of our outstanding shares of capital stock (other than our Series B
 preferred stock) into newly issued shares of our Class A common stock. In addition, we intend to recapitalize all of our outstanding
 shares of our Series B preferred stock into newly issued shares of our Class B common stock. The purpose of the recapitalization is to
 exchange all of our outstanding shares of capital stock (other than our Series B preferred stock) for shares of the Class A

                                                                      5



file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                                  Page 12 of 269
groupon.htm                                        6/2/11 12:35 PM




file:///Users/arikhesseldahl/Desktop/groupon.htm    Page 13 of 269
groupon.htm                                                                                                                           6/2/11 12:35 PM


 Table of Contents



 common stock that will be sold in this offering. See "Related Party Transactions—Recapitalization." Except as otherwise indicated,
 all information in this prospectus (other than historical financial statements) assumes:

        •      the amendment and restatement of our certificate of incorporation upon the closing of this offering;

        •      the consummation of the recapitalization prior to the closing of this offering; and

        •      no exercise of the underwriters' over-allotment option.

                                                                   6




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                       Page 14 of 269
groupon.htm                                                                                                                                6/2/11 12:35 PM


 Table of Contents


                               SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA

      We present below our summary consolidated financial and other data for the periods indicated. Financial information for periods
 prior to 2008 has not been provided because we began operations in 2008. The summary consolidated statements of operations data
 for the years ended December 31, 2008, 2009 and 2010 and the balance sheet data as of December 31, 2009 and 2010 have been
 derived from our audited consolidated financial statements included elsewhere in this prospectus. The balance sheet data for the year
 ended December 31, 2008 was derived from financial statements, which are not included in this prospectus. The summary
 consolidated statements of operations data for the periods ended March 31, 2010 and 2011 and the balance sheet data as of March 31,
 2011 have been derived from our unaudited consolidated financials statements included elsewhere in this prospectus. The unaudited
 information was prepared on a basis consistent with that used to prepare our audited financial statements and includes all adjustments,
 consisting of normal and recurring items, that we consider necessary for a fair presentation of the unaudited period. The historical
 results presented below are not necessarily indicative of financial results to be achieved in future periods. You should read this
 information together with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our audited
 and unaudited consolidated financial statements and accompanying notes, each included elsewhere in this prospectus.

                                                                                                         Three Months Ended
                                                        Year Ended December 31,                               March 31,
                                               2008              2009               2010                2010            2011
                                                                                                    (unaudited)      (unaudited)
                                                                (dollars in thousands, except per share data)
              Consolidated
                Statements of
                Operations Data:
              Revenue                   $              94 $        30,471 $         713,365 $           44,236 $         644,728
              Cost of revenue                          89          19,542           433,411             24,251           374,728
              Gross profit                              5          10,929           279,954             19,985           270,000
              Operating expenses:
                Marketing                             163           4,548           263,202              3,988           208,209
                Selling, general and
                  administrative                  1,474             7,458           233,913              7,426           178,939
                Acquisition-related                  —                 —            203,183                 —                 —
                  Total operating
                    expenses                      1,637            12,006           700,298             11,414           387,148
              (Loss) income from
                operations                       (1,632)           (1,077)         (420,344)             8,571          (117,148)
              Interest and other income
                (expense), net                         90              (16)              284                  3             1,060
              Equity-method
                investment activity,
                net of tax                             —                —                 —                  —               (882)
              (Loss) income before
                provision for income
                taxes                            (1,542)           (1,093)         (420,060)             8,574          (116,970)
              Provision (benefit) for
                income taxes                         —                248            (6,674)                23            (3,079)
              Net loss (income)                  (1,542)           (1,341)         (413,386)             8,551          (113,891)
              Less: Net loss
                attributable to
                noncontrolling
                interests                              —                —            23,746                  —            11,223
              Net (loss) income
                attributable to
                Groupon, Inc.                    (1,542)           (1,341)         (389,640)             8,551          (102,668)
              Dividends on preferred
                stock                                 (277)        (5,575)            (1,362)             (523)                —
              Redemption of preferred
                stock in excess of
                carrying value                         —                —           (52,893)                 —           (34,327)
              Adjustment of
                redeemable
                noncontrolling
                interests to redemption
                value                                  —                —           (12,425)                 —             (9,485)
              Preferred stock
                distributions                         (339)             —                 —                  —                 —


file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                            Page 15 of 269
groupon.htm                                                                                                                  6/2/11 12:35 PM


              Net (loss) income
               attributable to
               common
               stockholders            $        (2,158) $        (6,916) $      (456,320) $        8,028 $       (146,480)
              Net (loss) income per
               share
               Basic                   $         (0.01) $         (0.04) $         (2.66) $          0.03 $         (0.95)
               Diluted                 $         (0.01) $         (0.04) $         (2.66) $          0.03 $         (0.95)
              Weighted average
               number of shares
               outstanding
               Basic                       166,738,129      168,604,142      171,349,386      172,966,829     153,924,706
               Diluted                     166,738,129      168,604,142      171,349,386      245,962,571     153,924,706

                                                                   7




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                              Page 16 of 269
groupon.htm                                                                                                                                                            6/2/11 12:35 PM


 Table of Contents

                                                                                                                    Three Months Ended
                                                                 Year Ended December 31,                                 March 31,
                                                        2008          2009            2010                        2010             2011
              Key Operating Metrics:
               Subscribers(1)                              *          1,807,278           50,583,805             3,434,610       83,100,006
               Cumulative customers(2)                     *            375,099            9,031,807               874,017       15,803,995
               Featured merchants (3)                      *              2,695               66,289                 2,903           56,781
               Groupons sold(4)                            *          1,248,792           30,296,070             1,760,398       28,094,743

              *      Not available

              (1)    Reflects the total number of subscribers on the last day of the applicable period.

              (2)    Reflects the total number of unique customers who have purchased Groupons from January 1, 2009 through the last day of the applicable
                     period.

              (3)    Reflects the total number of merchants featured in the applicable period.

              (4)    Reflects the total number of Groupons sold in the applicable period.

                                                           As of December 31,                                  As of March 31, 2011
                                                                                                                                   Pro Forma
                                                    2008          2009             2010           Actual        Pro Forma(1) As Adjusted(2)(3)
                                                                                          (in thousands)
              Consolidated Balance
               Sheet Data:
               Cash and cash
                 equivalents                     $ 2,966 $ 12,313 $ 118,833 $ 208,688
               Working capital (deficit)           2,643    3,988  (196,564) (228,748)
               Total assets                        3,006   14,962   381,570   541,410
               Total long-term
                 liabilities                            —                —          1,621          14,790
               Redeemable preferred
                 stock                              4,747         34,712                  —                —
               Total Groupon, Inc.
                 stockholders' (deficit)
                 equity                            (2,091)      (29,969)            8,077            7,086

              (1)    The pro forma column gives effect to (i) the recapitalization of all outstanding shares of our capital stock (other than our Series B preferred
                     stock) into 296,140,145 shares of Class A common stock and all outstanding shares of our Series B preferred stock into 1,199,988 shares of
                     Class B common stock immediately prior to the closing of this offering; and (ii) the amendment and restatement of our certificate of
                     incorporation upon the closing of this offering.

              (2)    The pro forma as adjusted column gives further effect to the sale by us of Class A common stock in this offering at an assumed initial public
                     offering price of $         per share, which is the midpoint of the range reflected on the cover page of this prospectus, after deducting
                     estimated underwriting discounts and commissions and estimated offering expenses payable by us.

              (3)    Each $1.00 increase (decrease) in the assumed initial public offering price of $         per share would increase (decrease) the amount of pro
                     forma as adjusted cash and cash equivalents, working capital (deficit), total assets and total Groupon, Inc. stockholders' equity by
                     approximately $      million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same
                     and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each
                     increase (decrease) of one million shares in the number of shares of Class A common stock offered by us would increase (decrease) cash and
                     cash equivalents, working capital (deficit), total assets and total Groupon, Inc. stockholders' equity by approximately $     million, assuming
                     the assumed initial public offering price remains the same and after deducting estimated underwriting discounts and commissions and
                     estimated offering expenses payable by us.


                                                                               8




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                                                        Page 17 of 269
groupon.htm                                                                                                                                6/2/11 12:35 PM


 Table of Contents

 Non-GAAP Financial Measures

     We use adjusted consolidated segment operating income, or Adjusted CSOI, and free cash flow as key non-GAAP financial
 measures. Adjusted CSOI and free cash flow are used in addition to and in conjunction with results presented in accordance with
 GAAP and should not be relied upon to the exclusion of GAAP financial measures.

       Adjusted CSOI is operating income of our two segments, North America and International, adjusted for online marketing
 expense, acquisition-related costs and stock-based compensation expense. Online marketing expense primarily represents the cost to
 acquire new subscribers and is dictated by the amount of growth we wish to pursue. Acquisition-related costs are non-recurring non-
 cash items related to certain of our acquisitions. Stock-based compensation expense is a non-cash item. We consider Adjusted CSOI
 to be an important measure of the performance of our business as it excludes expenses that are non-cash or otherwise not indicative of
 future operating expenses. We believe it is important to view Adjusted CSOI as a complement to our entire consolidated statements
 of operations.

      Our use of Adjusted CSOI has limitations as an analytical tool, and you should not consider this measure in isolation or as a
 substitute for analysis of our results as reported under GAAP. Some of these limitations are:

        •       Adjusted CSOI does not reflect the significant cash investments that we currently are making to acquire new
                subscribers;

        •       Adjusted CSOI does not reflect the potentially dilutive impact of issuing equity-based compensation to our
                management team and employees or in connection with acquisitions;

        •       Adjusted CSOI does not reflect any interest expense or the cash requirements necessary to service interest or principal
                payments on any indebtedness that we may incur;

        •       Adjusted CSOI does not reflect any foreign exchange gains and losses;

        •       Adjusted CSOI does not reflect any tax payments that we might make, which would represent a reduction in cash
                available to us;

        •       Adjusted CSOI does not reflect changes in, or cash requirements for, our working capital needs; and

        •       other companies, including companies in our industry, may calculate Adjusted CSOI differently or may use other
                financial measures to evaluate their profitability, which reduces the usefulness of it as a comparative measure.

      Because of these limitations, Adjusted CSOI should not be considered as a measure of discretionary cash available to us to invest
 in the growth of our business. When evaluating our performance, you should consider Adjusted CSOI alongside other financial
 performance measures, including various cash flow metrics, net loss and our other GAAP results.

      Free cash flow, which is reconciled to "Net cash (used in) provided by operating activities," is cash flow from operations
 reduced by "Purchases of property and equipment." We use free cash flow, and ratios based on it, to conduct and evaluate our
 business because, although it is similar to cash flow from operations, we believe it typically will present a more conservative measure
 of cash flows as purchases of fixed assets, software developed for internal use and website development costs are a necessary
 component of ongoing operations.

       Free cash flow has limitations due to the fact that it does not represent the residual cash flow available for discretionary
 expenditures. For example, free cash flow does not include the cash payments for business acquisitions. In addition, free cash flow
 reflects the impact of the timing difference between when we are paid by customers and when we pay merchants. Therefore, we
 believe it is important to view free cash flow as a complement to our entire consolidated statements of cash flows.

                                                                   9




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                            Page 18 of 269
groupon.htm                                                                                                                      6/2/11 12:35 PM


 Table of Contents

        Adjusted CSOI

      The following is a reconciliation of Adjusted CSOI to the most comparable GAAP measure, "(Loss) income from operations,"
 for the years ended December 31, 2008, 2009 and 2010 and the first quarter of 2010 and 2011:

                                                                                                       Three Months Ended
                                                                  Year Ended December 31,                   March 31,
                                                           2008           2009           2010          2010         2011
                                                                                     (in thousands)
              (Loss) income from operations              $ (1,632) $ (1,077) $ (420,344) $              8,571 $ (117,148)
                Adjustments:
                Online marketing                              162          4,446       241,546          3,904      179,903
                Stock-based compensation                       24            115        36,168            116       18,864
                Acquisition-related                            —              —        203,183             —            —
                 Total adjustments                            186          4,561       480,897    4,020            198,767
              Adjusted CSOI                              $ (1,446) $       3,484 $      60,553 $ 12,591 $           81,619
              Adjusted Segment Operating
                 Income:
              North America                              $ (1,446) $       3,484 $       88,036 $ 12,591 $           38,610
              International                                    —              —         (27,483)      — $            43,009
              Adjusted CSOI                              $ (1,446) $       3,484 $       60,553 $ 12,591 $           81,619

        Free Cash Flow

     The following is a reconciliation of free cash flow to the most comparable GAAP measure, "Net cash (used in) provided by
 operating activities," for the years ended December 31, 2008, 2009 and 2010 and the first quarter of 2010 and 2011:

                                                                                                       Three Months Ended
                                                                    Year Ended December 31,                 March 31,
                                                              2008           2009         2010          2010        2011
                                                                                      (in thousands)
              Net cash (used in) provided by operating
                activities                                 $ (1,526) $ 7,510 $ 86,885 $ 12,897 $ 17,940
              Purchases of property and equipment               (19)    (290)  (14,681)   (863)  (10,962)
              Free cash flow                               $ (1,545) $ 7,220 $ 72,204 $ 12,034 $   6,978

                                                                     10




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                  Page 19 of 269
groupon.htm                                                                                                                                  6/2/11 12:35 PM


 Table of Contents


                                                           RISK FACTORS

      An investment in our Class A common stock involves a high degree of risk. You should carefully consider the risks described
 below and all of the other information contained in this prospectus before deciding whether to purchase our Class A common stock.
 Our business, prospects, financial condition or operating results could be materially adversely affected by any of these risks, as well
 as other risks not currently known to us or that we currently consider immaterial. The trading price of our Class A common stock
 could decline due to any of these risks, and you may lose all or part of your investment. In assessing the risks described below, you
 should also refer to the other information contained in this prospectus, including our consolidated financial statements and the
 related notes, before deciding to purchase any shares of our Class A common stock.

 Risks Related to Our Business

 We may not maintain the revenue growth that we have experienced since inception.

     Although our revenue has increased substantially since inception, we may not be able to maintain our historical rate of revenue
 growth. We believe that our continued revenue growth will depend, among other factors, on our ability to:

        •       acquire new subscribers who purchase Groupons;

        •       retain our existing subscribers and have them continue to purchase Groupons;

        •       attract new merchants who wish to offer deals through the sale of Groupons;

        •       retain our existing merchants and have them offer additional deals through our marketplace;

        •       expand the number, variety and relevance of products and deals we offer each day;

        •       increase the awareness of our brand across geographies;

        •       provide our subscribers and merchants with a superior experience;

        •       respond to changes in consumer access to and use of the internet and mobile devices; and

        •       react to challenges from existing and new competitors.

     However, we cannot assure you that we will successfully implement any of these actions.

 We have experienced rapid growth over a short period in a new market that we have created and we do not know whether this
 market will continue to develop or whether it can be maintained. If we are unable to successfully respond to changes in the
 market, our business could be harmed.

       Our business has grown rapidly as merchants and consumers have increasingly used our marketplace. However, this is a new
 market which we only created in late 2008 and which has operated at a substantial scale for only a limited period of time. Given the
 limited history, it is difficult to predict whether this market will continue to grow or whether it can be maintained. We expect that the
 market will evolve in ways which may be difficult to predict. For example, we anticipate that over time we will reach a point in most
 markets where we have achieved a market penetration such that investments in new subscriber acquisition are less productive and the
 continued growth of our gross profit will require more focus on increasing the rate at which our existing subscribers purchase
 Groupons. It is also possible that merchants or customers could broadly determine that they no longer believe in the value of our
 current services or marketplace. In the event of these or any other changes to the market, our continued success will depend on our
 ability to successfully adjust our strategy to meet the changing market dynamics. If we are unable to do so, our business could be
 harmed and our results of operations subject to a material negative impact.

                                                                    11




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                              Page 20 of 269
groupon.htm                                                                                                                                   6/2/11 12:35 PM


 Table of Contents



 We base our decisions regarding investments in subscriber acquisition primarily on our analysis of the profits generated from
 subscribers that we acquired in prior periods. If the estimates and assumptions we use are inaccurate, we may not be able to
 recover our subscriber acquisition costs and our growth rate and financial results will be adversely affected.

     Our decisions regarding investments in subscriber acquisition substantially depend upon our analysis of the profits generated
 from subscribers we acquired in earlier periods. We refer to this as our subscriber economics. Our analysis regarding subscriber
 economics includes several assumptions, including:

        •       Because the costs of offering or distributing deals to existing subscribers are not significant, our analysis considers
                only the marketing costs incurred during the quarter in which the subscribers are originally acquired and assumes that
                no additional marketing expenses will be incurred with respect to such subscribers in subsequent periods. If our
                assumption regarding the need for marketing expenses in subsequent periods is incorrect, our subscriber economics
                could be less favorable than we believe.

        •       The analysis which we present below in "Business—Subscriber Economics" includes a discussion of our Q2 2010
                cohort and case studies from certain of our largest markets. These results inherently reflect a distinct group of
                merchants, subscribers and geographies and may not be representative of our current or future composite group of
                merchants, subscribers and geographies. For example, our Q2 2010 cohort and market case studies may reflect unique
                market dynamics or the novelty of our service during the periods covered.

      If our assumptions regarding our subscriber economics, including those relating to the effectiveness of our marketing spend,
 prove incorrect, our ability to generate profits from our investments in new subscriber acquisitions may be less than we have
 assumed. In such case, we may need to increase expenses or otherwise alter our strategy and our results of operations could be
 negatively impacted.

 We have incurred net losses since inception and we expect our operating expenses to increase significantly in the foreseeable
 future.

      We incurred net losses of $389.6 million and $102.7 million in 2010 and the first quarter of 2011, respectively, and had an
 accumulated deficit of $522.1 million as of March 31, 2011. We anticipate that our operating expenses will increase substantially in
 the foreseeable future as we continue to invest to increase our subscriber base, increase the number and variety of deals we offer each
 day, expand our marketing channels, expand our operations, hire additional employees and develop our technology platform. These
 efforts may prove more expensive than we currently anticipate, and we may not succeed in increasing our revenue sufficiently to
 offset these higher expenses. Many of our efforts to generate revenue from our business are new and unproven, and any failure to
 increase our revenue could prevent us from attaining or increasing profitability. We cannot be certain that we will be able to attain or
 increase profitability on a quarterly or annual basis. If we are unable to effectively manage these risks and difficulties as we encounter
 them, our business, financial condition and results of operations may suffer.

 If we fail to retain our existing subscribers or acquire new subscribers, our revenue and business will be harmed.

     We spent $179.9 million on online marketing initiatives relating to subscriber acquisition for the first quarter of 2011 and expect
 to continue to spend significant amounts to acquire additional subscribers. We must continue to retain and acquire subscribers that
 purchase Groupons in order to increase revenue and achieve profitability. We cannot assure you that the revenue or gross profit from
 subscribers we acquire will ultimately exceed the cost of acquiring new subscribers. If consumers do not perceive our Groupon offers
 to be of high value and quality or if we fail to introduce new and more relevant deals, we may not be able to acquire or retain
 subscribers. If we are unable to acquire new subscribers who purchase Groupons in numbers sufficient to grow our business, or if
 subscribers cease to purchase Groupons, the revenue or gross profit we generate may decrease and our operating results will be
 adversely affected.

                                                                    12




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                               Page 21 of 269
groupon.htm                                                                                                                                 6/2/11 12:35 PM


 Table of Contents

       We believe that many of our new subscribers originate from word-of-mouth and other non-paid referrals from existing
 subscribers, and therefore we must ensure that our existing subscribers remain loyal to our service in order to continue receiving those
 referrals. If our efforts to satisfy our existing subscribers are not successful, we may not be able to acquire new subscribers in
 sufficient numbers to continue to grow our business or we may be required to incur significantly higher marketing expenses in order
 to acquire new subscribers. Further, we believe that our success is influenced by the level of communication and sharing among
 subscribers. If the level of usage by our subscriber base declines or does not grow as expected, we may suffer a decline in subscriber
 growth or revenue. A significant decrease in the level of usage or subscriber growth would have an adverse effect on our business,
 financial condition and results of operations.

 If we fail to retain existing merchants or add new merchants, our revenue and business will be harmed.

      We depend on our ability to attract and retain merchants that are prepared to offer products or services on compelling terms
 through our marketplace. We do not have long-term arrangements to guarantee the availability of deals that offer attractive quality,
 value and variety to consumers or favorable payment terms to us. We must continue to attract and retain merchants in order to
 increase revenue and achieve profitability. If new merchants do not find our marketing and promotional services effective, or if
 existing merchants do not believe that utilizing our products provides them with a long-term increase in customers, revenues or
 profits, they may stop making offers through our marketplace. In addition, we may experience attrition in our merchants in the
 ordinary course of business resulting from several factors, including losses to competitors and merchant closures or bankruptcies. If
 we are unable to attract new merchants in numbers sufficient to grow our business, or if too many merchants are unwilling to offer
 products or services with compelling terms through our marketplace or offer favorable payment terms to us, we may sell fewer
 Groupons and our operating results will be adversely affected.

       If our efforts to market, advertise and promote products and services from our existing merchants are not successful, or if our
 existing merchants do not believe that utilizing our services provides them with a long-term increase in customers, revenues or
 profits, we may not be able to retain or attract merchants in sufficient numbers to grow our business or we may be required to incur
 significantly higher marketing expenses or accept lower margins in order to attract new merchants. A significant increase in merchant
 attrition or decrease in merchant growth would have an adverse effect on our business, financial condition and results of operation.

 Our business is highly competitive. Competition presents an ongoing threat to the success of our business.

      We expect competition in e-commerce generally, and group buying in particular, to continue to increase because there are no
 significant barriers to entry. A substantial number of group buying sites that attempt to replicate our business model have emerged
 around the world. In addition to such competitors, we expect to increasingly compete against other large internet and technology-
 based businesses, such as Facebook, Google and Microsoft, each of which has launched initiatives which are directly competitive to
 our business. We also expect to compete against other internet sites that are focused on specific communities or interests and offer
 coupons or discount arrangements related to such communities or interests. We also compete with traditional offline coupon and
 discount services, as well as newspapers, magazines and other traditional media companies who provide coupons and discounts on
 products and services.

     We believe that our ability to compete depends upon many factors both within and beyond our control, including the following:

        •       the size and composition of our subscriber base and the number of merchants we feature;

        •       the timing and market acceptance of deals we offer, including the developments and enhancements to those deals
                offered by us or our competitors;

                                                                   13




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                             Page 22 of 269
groupon.htm                                                                                                                                     6/2/11 12:35 PM


 Table of Contents

        •       subscriber and merchant service and support efforts;

        •       selling and marketing efforts;

        •       ease of use, performance, price and reliability of services offered either by us or our competitors;

        •       our ability to cost-effectively manage our operations; and

        •       our reputation and brand strength relative to our competitors.

       Many of our current and potential competitors have longer operating histories, significantly greater financial, marketing and other
 resources and larger subscriber bases than we do. These factors may allow our competitors to benefit from their existing customer or
 subscriber base with lower customer acquisition costs or to respond more quickly than we can to new or emerging technologies and
 changes in consumer habits. These competitors may engage in more extensive research and development efforts, undertake more far-
 reaching marketing campaigns and adopt more aggressive pricing policies, which may allow them to build larger subscriber bases or
 generate revenue from their subscriber bases more effectively than we do. Our competitors may offer deals that are similar to the
 deals we offer or that achieve greater market acceptance than the deals we offer. This could attract subscribers away from our
 websites and applications, reduce our market share and adversely impact our gross margin. In addition, we are dependent on some of
 our existing or potential competitors, including Facebook, Google and Microsoft, for banner advertisements and other marketing
 initiatives to acquire new subscribers. Our ability to utilize their platforms to acquire new subscribers may be adversely affected if
 they choose to compete more directly with us.

 If we are unable to recover subscriber acquisition costs with revenue and gross profit generated from those subscribers, our
 business and operating results will be harmed.

       As of March 31, 2011, we had 83.1 million subscribers to our daily emails, and we expect the number of subscribers to grow
 significantly during the remainder of 2011. Acquiring a subscriber base is costly, and the success of our business depends on our
 ability to generate revenue from new and existing subscribers. In 2010 and the first quarter of 2011, we spent $241.5 million and
 $179.9 million, respectively, on online marketing initiatives relating to subscriber acquisition. As our subscriber base continues to
 evolve, it is possible that the composition of our subscribers may change in a manner that makes it more difficult to generate revenue
 and gross profit to offset the costs associated with acquiring new subscribers. For example, if we acquire a large number of new
 subscribers who are not viewed as an attractive demographic by merchants, we may not be able to generate compelling products for
 those subscribers to offset the cost of acquiring those subscribers. If the cost to acquire subscribers is greater than the revenue or gross
 profit we generate over time from those subscribers, our business and operating results will be harmed.

 If we are unable to maintain favorable terms with our merchants, our gross profit may be adversely affected.

     The success of our business depends in part on our ability to retain and increase the number of merchants who use our service.
 Currently, when a merchant partners with us to offer a deal for its products or services, it receives an agreed upon percentage of the
 revenue from each Groupon sold, and we retain the rest. If merchants decide that utilizing our services no longer provides an effective
 means of attracting new customers or selling their goods and services, they may demand a higher percentage of the revenue from each
 Groupon sold. This would adversely affect our gross profit.

     In addition, we expect to face increased competition from other internet and technology-based businesses such as Facebook,
 Google and Microsoft, each of which has launched initiatives which are directly competitive to our business. We also have seen that
 some competitors will accept lower margins, or negative margins, to attract attention and acquire new subscribers. If competitors
 engage in group buying initiatives in which merchants receive a higher percentage of the revenue than we currently offer, we may

                                                                     14




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                                 Page 23 of 269
groupon.htm                                                                                                                                   6/2/11 12:35 PM


 Table of Contents




 be forced to pay a higher percentage of the revenue than we currently offer, which may reduce our gross profit.

 Our operating cash flow and results of operations could be adversely impacted if we change our merchant payment terms or our
 revenue does not continue to grow.

      Our merchant payment terms and revenue growth have provided us with operating cash flow to fund our working capital needs.
 Our merchant arrangements are generally structured such that we collect cash up front when our customers purchase Groupons and
 make payments to our merchants at a subsequent date. In North America, we typically pay our merchants in installments within sixty
 days after the Groupon is sold. In most of our International markets, merchants are not paid until the customer redeems the Groupon.
 Our accrued merchant payable, which primarily consists of payment obligations to our merchants, has grown, both nominally and as a
 percentage of revenue, as our revenue has increased, particularly the revenue from our international segment. Our accrued merchant
 payable balance increased from $4.3 million as of December 31, 2009 to $290.7 million as of March 31, 2011. We use the operating
 cash flow provided by our merchant payment terms and revenue growth to fund our working capital needs. If we offer our merchants
 more favorable or accelerated payment terms or our revenue does not continue to grow in the future, our operating cash flow and
 results of operations could be adversely impacted and we may have to seek alternative financing to fund our working capital needs.

 Our business relies heavily on email and other messaging services, and any restrictions on the sending of emails or messages or a
 decrease in subscriber willingness to receive messages could adversely affect our revenue and business.

      Our business is highly dependent upon email and other messaging services. Deals offered through emails and other messages sent
 by us, or on our behalf by our affiliates, generate a substantial portion of our revenue. Because of the importance of email and other
 messaging services to our businesses, if we are unable to successfully deliver emails or messages to our subscribers or potential
 subscribers, or if subscribers decline to open our emails or messages, our revenue and profitability would be adversely affected.
 Actions by third parties to block, impose restrictions on, or charge for the delivery of, emails or other messages could also materially
 and adversely impact our business. From time to time, internet service providers block bulk email transmissions or otherwise
 experience technical difficulties that result in our inability to successfully deliver emails or other messages to third parties. In
 addition, our use of email and other messaging services to send communications about our website or other matters may result in legal
 claims against us, which if successful might limit or prohibit our ability to send emails or other messages. Any disruption or restriction
 on the distribution of emails or other messages or any increase in the associated costs would materially and adversely affect our
 revenue and profitability.

 We have a rapidly evolving business model and our new product and service offerings could fail to attract or retain subscribers or
 generate revenue.

      We have a rapidly evolving business model and are regularly exploring entry into new market segments and the introduction of
 new products and features with respect to which we may have limited experience. In addition, our subscribers may not respond
 favorably to our new products and services. These products and services may present new and significant technology challenges, and
 we may be subject to claims if subscribers of these offerings experience service disruptions or failures or other quality issues. If
 products or services we introduce, such as changes to our websites and applications, the introduction of social networking and
 location-based marketing elements to our websites, or entirely new lines of business that we may pursue, fail to engage subscribers or
 merchants, we may fail to acquire or retain subscribers or generate sufficient revenue or other value to justify our investment, and our
 business may be materially and adversely affected. Our ability to retain or increase our subscriber base and revenue will depend
 heavily on our ability to innovate and to create successful new products and services. In addition, the

                                                                    15




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                               Page 24 of 269
groupon.htm                                                                                                                                  6/2/11 12:35 PM


 Table of Contents



 relative profitability, if any, of our new activities may be lower than that of our historical activities, and we may not generate
 sufficient revenue from new activities to recoup our investments in them. If any of this were to occur, it could damage our reputation,
 limit our growth and negatively affect our operating results.

 There are many risks associated with our international operations and international expansion.

      Our international expansion has been rapid and our international business has become critical to the growth in our revenue and
 our ability to achieve profitability. In 2010 and the first quarter of 2011, 37.2% and 53.8%, respectively, of our revenue was generated
 from our international operations. We began our international operations in May 2010 with the acquisition of CityDeal
 Europe GmbH, or CityDeal, which was founded by Oliver Samwer and Marc Samwer. Since the CityDeal acquisition,
 Messrs. Samwer have served as consultants and been extensively involved in the development and operations of our International
 segment. The agreements under which Messrs. Samwer provide us with consulting services will expire in October 2011 and we can
 make no assurances that the loss of their services will not disrupt our international operations or have an adverse effect on our ability
 to grow our international business.

      Further expansion into international markets requires management attention and resources and requires us to localize our services
 to conform to a wide variety of local cultures, business practices, laws and policies. The different commercial and internet
 infrastructure in other countries may make it more difficult for us to replicate our business model. In many countries, we compete
 with local companies that understand the local market better than we do, and we may not benefit from first-to-market advantages.
 We may not be successful in expanding into particular international markets or in generating revenue from foreign operations. As we
 continue to expand internationally, we are increasingly subject to risks of doing business internationally, including the following:

        •       strong local competitors;

        •       different regulatory requirements, including regulation of gift cards and coupon terms, internet services, professional
                selling, distance selling, bulk emailing, privacy and data protection, banking and money transmitting, that may limit or
                prevent the offering of our services in some jurisdictions or prevent enforceable agreements;

        •       cultural ambivalence towards, or non-acceptance of, Groupon marketing;

        •       difficulties in integrating with local payment providers, including banks, credit and debit card networks and electronic
                funds transfer systems;

        •       different employee/employer relationships and the existence of workers' councils and labor unions;

        •       longer payment cycles, different accounting practices and greater problems in collecting accounts receivable;

        •       potentially adverse tax consequences, including the application of U.S. tax rules to acquired international operations
                and local taxation of our fees or of transactions on our websites;

        •       higher internet service provider costs;

        •       seasonal reductions in business activity;

        •       expenses associated with localizing our products, including offering subscribers the ability to transact business in the
                local currency;

        •       restrictions on the repatriation of funds, foreign currency exchange restrictions and exchange rate fluctuations; and

        •       differing intellectual property laws.

                                                                    16




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                              Page 25 of 269
groupon.htm                                                                                                                                 6/2/11 12:35 PM


 Table of Contents

     Some of these factors may cause our international costs of doing business to exceed our comparable costs in North America. As
 we expand our international operations and have additional portions of our international revenue denominated in foreign currencies,
 we also could become subject to increased difficulties in collecting accounts receivable and repatriating money without adverse tax
 consequences and increased risks relating to foreign currency exchange rate fluctuations.

      We conduct certain functions, including product development, subscriber support and other operations, in regions outside of
 North America. We are subject to both U.S. and local laws and regulations applicable to our international activities, and any factors
 which reduce the anticipated benefits, including cost efficiencies and productivity improvements, associated with providing these
 functions outside of North America could adversely affect our business.

      We currently use a common technology platform in our North American segment to operate our business and are in the process
 of migrating our operations in our International segment to the same platform. Such changes to our technology platform and related
 software carry risks such as cost overruns, project delays and business interruptions and delays. If we experience a material business
 interruption as a result of this process, it could have a material adverse effect on our business, financial position and results of
 operations and could cause the market value of our common stock to decline.

      We are continuing to expand our services internationally. In some countries, expansion of our business may require a close
 commercial relationship with one or more local banks, a shared ownership interest with a local entity or registration as a bank under
 local law. Such requirements may reduce our revenue, increase our costs or limit the scope of our activities in particular countries.
 Any limitation on our ability to expand internationally could harm our business.

 An increase in our refund rates could reduce our liquidity and profitability.

      Our "Groupon Promise" states that we will provide our customers with a refund of the purchase price of a Groupon if they
 believe that we have let them down. As we increase our revenue, our refund rates may exceed our historical levels. A downturn in
 general economic conditions may also increase our refund rates. An increase in our refund rates could significantly reduce our
 liquidity and profitability.

      As we do not have control over our merchants and the quality of products or services they deliver, we rely on a combination of
 our historical experience with each merchant and online and offline research of customer reviews of merchants for the development of
 our estimate for refund claims. Our actual level of refund claims could prove to be greater than the level of refund claims we estimate.
 If our refund reserves are not adequate to cover future refund claims, this inadequacy could have a material adverse effect on our
 liquidity and profitability.

       Our standard agreements with our merchants generally limit the time period during which we may seek reimbursement for
 customer refunds or claims. Our customers may make claims for refunds with respect to which we are unable to seek reimbursement
 from our merchants. Our inability to seek reimbursement from our merchants for refund claims could have an adverse effect on our
 liquidity and profitability.

 If our merchants do not meet the needs and expectations of our subscribers, our business could suffer.

      Our business depends on our reputation for providing high-quality deals, and our brand and reputation may be harmed by actions
 taken by merchants that are outside our control. Any shortcomings of one or more of our merchants, particularly with respect to an
 issue affecting the quality of the deal offered or the products or services sold, may be attributed by our subscribers to us, thus
 damaging our reputation, brand value and potentially affecting our results of operations. In addition, negative publicity and subscriber
 sentiment generated as a result of fraudulent or deceptive conduct by our merchants could

                                                                   17




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                             Page 26 of 269
groupon.htm                                                                                                                                6/2/11 12:35 PM


 Table of Contents



 damage our reputation, reduce our ability to attract new subscribers or retain our current subscribers, and diminish the value of our
 brand.

 We cannot assure you that we will be able to manage the growth of our organization effectively.

      We have experienced rapid growth in demand for our services since our inception. Our employee headcount and number of
 subscribers have increased significantly since our inception, and we expect this growth to continue for the foreseeable future. The
 growth and expansion of our business and service offerings places significant demands on our management and our operational and
 financial resources. We are required to manage multiple relations with various merchants, subscribers, technology licensors and other
 third parties. In the event of further growth of our operations or in the number of our third-party relationships, our information
 technology systems or our internal controls and procedures may not be adequate to support our operations. To effectively manage our
 growth, we must continue to implement operational plans and strategies, improve and expand our infrastructure of people and
 information systems, and train and manage our employee base.

 The loss of one or more key members of our management team, or our failure to attract, integrate and retain other highly
 qualified personnel in the future, could harm our business.

      We currently depend on the continued services and performance of the key members of our management team, including
 Andrew D. Mason, our Chief Executive Officer, and Jason E. Child, our Chief Financial Officer. Mr. Mason is one of our founders
 and his leadership has played an integral role in our growth. The loss of key personnel, including key members of management as
 well as our marketing, sales, product development and technology personnel, could disrupt our operations and have an adverse effect
 on our ability to grow our business. Moreover, many members of our management are new to our team or have been recently
 promoted to new roles.

      Eric P. Lefkofsky is one of our founders and has served as the Executive Chairman of our Board of Directors since our inception.
 Although Mr. Lefkofsky historically has devoted a significant amount of his business time to Groupon, he is under no contractual or
 other obligation to do so and may not do so in the future. Mr. Lefkofsky invests his business time and financial resources in a variety
 of other businesses, including Lightbank LLC, a private investment firm that Mr. Lefkofsky co-founded with Bradley A. Keywell.
 Such investments may be in areas that present conflicts with, or involve businesses related to, our operations. If Mr. Lefkofsky
 devotes less time to our business in the future, our business may be adversely affected.

      As we become a more mature company, we may find our recruiting and retention efforts more challenging. We are seeking to
 hire a significant number of personnel in 2011, including certain key management personnel. If we do not succeed in attracting, hiring
 and integrating excellent personnel, or retaining and motivating existing personnel, we may be unable to grow effectively.

 We may be subject to additional unexpected regulation which could increase our costs or otherwise harm our business.

      The application of certain laws and regulations to Groupons, as a new product category, is uncertain. These include laws and
 regulations such as the Credit Card Accountability Responsibility and Disclosure Act of 2009, or the CARD Act, and unclaimed and
 abandoned property laws. In addition, from time to time, we may be notified of additional laws and regulations which governmental
 organizations or others may claim should be applicable to our business. For example, we were recently notified by the Massachusetts
 Alcoholic Beverages Control Commission that Groupon discounts for some Massachusetts restaurants may not be in compliance with
 Massachusetts liquor laws and regulations. If we are required to alter our business practices as a result of any laws and regulations,
 our revenue could decrease, our costs could increase and our business could otherwise be harmed. In addition, the costs and expenses
 associated

                                                                   18




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                            Page 27 of 269
groupon.htm                                                                                                                                 6/2/11 12:35 PM


 Table of Contents




 with defending any actions related to such additional laws and regulations and any payments of related penalties, judgments or
 settlements could adversely impact our profitability.

 The implementation of the CARD Act and similar state and foreign laws may harm our business and results of operations.

      Groupons may be considered gift cards, gift certificates, stored value cards or prepaid cards and therefore governed by, among
 other laws, the CARD Act, and state laws governing gift cards, stored value cards and coupons. Other foreign jurisdictions have
 similar laws in place, in particular European jurisdictions where the European E-Money Directive regulates the business of electronic
 money institutions. Many of these laws contain provisions governing the use of gift cards, gift certificates, stored value cards or
 prepaid cards, including specific disclosure requirements and prohibitions or limitations on the use of expiration dates and the
 imposition of certain fees. For example, if Groupons are subject to the CARD Act, the value of the Groupon must not expire before
 the later of (i) five years after the date on which the Groupon was issued or the date on which the subscriber last loaded funds on the
 Groupon if the Groupon has a reloadable feature; and (ii) the Groupon's expiration date, if any. We are currently subject to several
 purported class actions claiming that Groupons are subject to the CARD Act. In the event that it is determined that Groupons are
 subject to the CARD Act or any similar state or foreign law or regulation, our liabilities with respect to unredeemed Groupons may be
 materially higher than the amounts shown in our financial statements and we may be subject to additional fines and penalties. If we
 are required to materially increase the estimated liability recorded in our financial statements with respect to unredeemed gift cards,
 our net income could be materially and adversely affected.

 If we are required to materially increase the estimated liability recorded in our financial statements with respect to unredeemed
 Groupons, our net income could be materially and adversely affected.

      In certain states and foreign jurisdictions, Groupons may be considered a gift card. Some of these states and foreign jurisdictions
 include gift cards under their unclaimed and abandoned property laws which require companies to remit to the government the value
 of the unredeemed balance on the gift cards after a specified period of time (generally between one and five years) and impose certain
 reporting and recordkeeping obligations. We do not remit any amounts relating to unredeemed Groupons based on our assessment of
 applicable laws. The analysis of the potential application of the unclaimed and abandoned property laws to Groupons is complex,
 involving an analysis of constitutional and statutory provisions and factual issues, including our relationship with subscribers and
 merchants and our role as it relates to the issuance and delivery of a Groupon. In the event that one or more states or foreign
 jurisdictions successfully challenges our position on the application of its unclaimed and abandoned property laws to Groupons, or if
 the estimates that we use in projecting the likelihood of Groupons being redeemed prove to be inaccurate, our liabilities with respect
 to unredeemed Groupons may be materially higher than the amounts shown in our financial statements. If we are required to
 materially increase the estimated liability recorded in our financial statements with respect to unredeemed gift cards, our net income
 could be materially and adversely affected. Moreover, a successful challenge to our position could subject us to penalties or interest
 on unreported and unremitted sums, and any such penalties or interest would have a further material adverse impact on our net
 income.

 Government regulation of the internet and e-commerce is evolving, and unfavorable changes or failure by us to comply with these
 regulations could substantially harm our business and results of operations.

     We are subject to general business regulations and laws as well as regulations and laws specifically governing the internet and e-
 commerce. Existing and future regulations and laws could impede the growth of the internet or other online services. These
 regulations and laws may involve taxation, tariffs, subscriber privacy, data protection, content, copyrights, distribution, electronic
 contracts and other communications, consumer protection, the provision of online payment services and the characteristics and quality
 of

                                                                   19




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                             Page 28 of 269
groupon.htm                                                                                                                                      6/2/11 12:35 PM


 Table of Contents



 services. It is not clear how existing laws governing issues such as property ownership, sales and other taxes, libel and personal
 privacy apply to the internet as the vast majority of these laws were adopted prior to the advent of the internet and do not contemplate
 or address the unique issues raised by the internet or e-commerce. In addition, it is possible that governments of one or more countries
 may seek to censor content available on our websites and applications or may even attempt to completely block access to our
 websites. Adverse legal or regulatory developments could substantially harm our business. In particular, in the event that we are
 restricted, in whole or in part, from operating in one or more countries, our ability to retain or increase our subscriber base may be
 adversely affected and we may not be able to maintain or grow our revenue as anticipated.

 New tax treatment of companies engaged in internet commerce may adversely affect the commercial use of our services and our
 financial results.

      Due to the global nature of the internet, it is possible that various states or foreign countries might attempt to regulate our
 transmissions or levy sales, income or other taxes relating to our activities. Tax authorities at the international, federal, state and local
 levels are currently reviewing the appropriate treatment of companies engaged in internet commerce. New or revised international,
 federal, state or local tax regulations may subject us or our subscribers to additional sales, income and other taxes. We cannot predict
 the effect of current attempts to impose sales, income or other taxes on commerce over the internet. New or revised taxes and, in
 particular, sales taxes, VAT and similar taxes would likely increase the cost of doing business online and decrease the attractiveness of
 advertising and selling goods and services over the internet. New taxes could also create significant increases in internal costs
 necessary to capture data, and collect and remit taxes. Any of these events could have an adverse effect on our business and results of
 operations.

 Failure to comply with federal, state and international privacy laws and regulations, or the expansion of current or the enactment
 of new privacy laws or regulations, could adversely affect our business.

      A variety of federal, state and international laws and regulations govern the collection, use, retention, sharing and security of
 consumer data. The existing privacy-related laws and regulations are evolving and subject to potentially differing interpretations. In
 addition, various federal, state and foreign legislative and regulatory bodies may expand current or enact new laws regarding privacy
 matters. For example, recently there have been Congressional hearings and increased attention to the capture and use of location-
 based information relating to users of smartphones and other mobile devices. We have posted privacy policies and practices
 concerning the collection, use and disclosure of subscriber data on our websites and applications. Several internet companies have
 incurred penalties for failing to abide by the representations made in their privacy policies and practices. In addition, several states
 have adopted legislation that requires businesses to implement and maintain reasonable security procedures and practices to protect
 sensitive personal information and to provide notice to consumers in the event of a security breach. Any failure, or perceived failure,
 by us to comply with our posted privacy policies or with any data-related consent orders, Federal Trade Commission requirements or
 orders or other federal, state or international privacy or consumer protection-related laws, regulations or industry self-regulatory
 principles could result in claims, proceedings or actions against us by governmental entities or others or other liabilities, which could
 adversely affect our business. In addition, a failure or perceived failure to comply with industry standards or with our own privacy
 policies and practices could result in a loss of subscribers or merchants and adversely affect our business. Federal, state and
 international governmental authorities continue to evaluate the privacy implications inherent in the use of third-party web "cookies"
 for behavioral advertising. The regulation of these cookies and other current online advertising practices could adversely affect our
 business.

                                                                      20




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                                  Page 29 of 269
groupon.htm                                                                                                                                  6/2/11 12:35 PM


 Table of Contents

 We may suffer liability as a result of information retrieved from or transmitted over the internet and claims related to our service
 offerings.

       We may be, and in certain cases have been, sued for defamation, civil rights infringement, negligence, patent, copyright or
 trademark infringement, invasion of privacy, personal injury, product liability, breach of contract, unfair competition, discrimination,
 antitrust or other legal claims relating to information that is published or made available on our websites or service offerings we make
 available (including provision of an application programming interface platform for third parties to access our website, mobile device
 services and geolocation applications). This risk is enhanced in certain jurisdictions outside the United States, where our liability for
 such third-party actions may be less clear and we may be less protected. In addition, we could incur significant costs in investigating
 and defending such claims, even if we ultimately are not found liable. If any of these events occurs, our net income could be
 materially and adversely affected.

     We are subject to risks associated with information disseminated through our websites and applications, including consumer data,
 content that is produced by our editorial staff and errors or omissions related to our product offerings. Such information, whether
 accurate or inaccurate, may result in our being sued by our merchants, subscribers or third parties and as a result our revenue and
 goodwill could be materially and adversely affected.

 Our business depends on our ability to maintain and scale the network infrastructure necessary to operate our websites and
 applications, and any significant disruption in service on our websites or applications could result in a loss of subscribers or
 merchants.

       Subscribers access our deals through our websites and applications. Our reputation and ability to acquire, retain and serve our
 subscribers are dependent upon the reliable performance of our websites and applications and the underlying network infrastructure.
 As our subscriber base and the amount of information shared on our websites and applications continue to grow, we will need an
 increasing amount of network capacity and computing power. We have spent and expect to continue to spend substantial amounts on
 data centers and equipment and related network infrastructure to handle the traffic on our websites and applications. The operation of
 these systems is expensive and complex and could result in operational failures. In the event that our subscriber base or the amount of
 traffic on our websites and applications grows more quickly than anticipated, we may be required to incur significant additional costs.
 Interruptions in these systems, whether due to system failures, computer viruses or physical or electronic break-ins, could affect the
 security or availability of our websites and applications, and prevent our subscribers from accessing our services. A substantial
 portion of our network infrastructure is hosted by third-party providers. Any disruption in these services or any failure of these
 providers to handle existing or increased traffic could significantly harm our business. Any financial or other difficulties these
 providers face may adversely affect our business, and we exercise little control over these providers, which increases our vulnerability
 to problems with the services they provide. If we do not maintain or expand our network infrastructure successfully or if we
 experience operational failures, we could lose current and potential subscribers and merchants, which could harm our operating results
 and financial condition.

 Our business depends on the development and maintenance of the internet infrastructure.

      The success of our services will depend largely on the development and maintenance of the internet infrastructure. This includes
 maintenance of a reliable network backbone with the necessary speed, data capacity and security, as well as timely development of
 complementary products, for providing reliable internet access and services. The internet has experienced, and is likely to continue to
 experience, significant growth in the number of users and amount of traffic. The internet infrastructure may be unable to support such
 demands. In addition, increasing numbers of users, increasing bandwidth requirements or problems caused by viruses, worms,
 malware and similar programs may harm the performance of the internet. The backbone computers of the internet have been the
 targets of such programs. The internet has

                                                                    21




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                              Page 30 of 269
groupon.htm                                                                                                                                   6/2/11 12:35 PM


 Table of Contents



 experienced a variety of outages and other delays as a result of damage to portions of its infrastructure, and it could face outages and
 delays in the future. These outages and delays could reduce the level of internet usage generally as well as the level of usage of our
 services, which could adversely impact our business.

 We may not be able to adequately protect our intellectual property rights or may be accused of infringing intellectual property
 rights of third parties.

      We regard our subscriber list, trademarks, service marks, copyrights, patents, trade dress, trade secrets, proprietary technology
 and similar intellectual property as critical to our success, and we rely on trademark, copyright and patent law, trade secret protection
 and confidentiality and/or license agreements with our employees and others to protect our proprietary rights. Effective intellectual
 property protection may not be available in every country in which our deals are made available. We also may not be able to acquire
 or maintain appropriate domain names or trademarks in all countries in which we do business. Furthermore, regulations governing
 domain names may not protect our trademarks and similar proprietary rights. We may be unable to prevent third parties from
 acquiring and using domain names that are similar to, infringe upon or diminish the value of our trademarks and other proprietary
 rights. We may be unable to prevent third parties from using and registering our trademarks, or trademarks that are similar to, or
 diminish the value of, our trademark in some countries.

      We may not be able to discover or determine the extent of any unauthorized use of our proprietary rights. Third parties that
 license our proprietary rights also may take actions that diminish the value of our proprietary rights or reputation. The protection of
 our intellectual property may require the expenditure of significant financial and managerial resources. Moreover, the steps we take to
 protect our intellectual property may not adequately protect our rights or prevent third parties from infringing or misappropriating our
 proprietary rights. We are currently subject to multiple litigations and disputes related to our intellectual property and service
 offerings. We may in the future be subject to additional litigation and disputes. The costs of supporting such litigation and disputes are
 considerable, and there can be no assurances that favorable outcomes will be obtained.

      We are currently subject to third-party claims that we infringe their proprietary rights or trademarks and expect to be subject to
 additional claims in the future. Such claims, whether or not meritorious, may result in the expenditure of significant financial and
 managerial resources, injunctions against us or the payment of damages by us. We may need to obtain licenses from third parties who
 allege that we have infringed their rights, but such licenses may not be available on terms acceptable to us or at all. These risks have
 been amplified by the increase in third parties whose sole or primary business is to assert such claims.

 Our business depends on a strong brand, and if we are not able to maintain and enhance our brand, or if we receive unfavorable
 media coverage, our ability to expand our base of subscribers and merchants will be impaired and our business and operating
 results will be harmed.

      We believe that the brand identity that we have developed has significantly contributed to the success of our business. We also
 believe that maintaining and enhancing the "Groupon" brand is critical to expanding our base of subscribers and merchants.
 Maintaining and enhancing our brand may require us to make substantial investments and these investments may not be successful. If
 we fail to promote and maintain the "Groupon" brand, or if we incur excessive expenses in this effort, our business, operating results
 and financial condition will be materially and adversely affected. We anticipate that, as our market becomes increasingly competitive,
 maintaining and enhancing our brand may become increasingly difficult and expensive. Maintaining and enhancing our brand will
 depend largely on our ability to be a group buying leader and to continue to provide reliable, trustworthy and high quality deals,
 which we may not do successfully.

                                                                    22




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                               Page 31 of 269
groupon.htm                                                                                                                                  6/2/11 12:35 PM


 Table of Contents

       We receive a high degree of media coverage around the world. Unfavorable publicity or consumer perception of our websites,
 applications, practices or service offerings, or the offerings of our merchants, could adversely affect our reputation, resulting in
 difficulties in recruiting, decreased revenue and a negative impact on the number of merchants we feature and the size of our
 subscriber base, the loyalty of our subscribers and the number and variety of deals we offer each day. As a result, our business,
 financial condition and results of operations could be materially and adversely affected.

 Acquisitions, joint ventures and strategic investments could result in operating difficulties, dilution and other harmful
 consequences.

      We expect to continue to evaluate and consider a wide array of potential strategic transactions, including acquisitions and
 dispositions of businesses, joint ventures, technologies, services, products and other assets and strategic investments. At any given
 time, we may be engaged in discussions or negotiations with respect to one or more of these types of transactions. Any of these
 transactions could be material to our financial condition and results of operations. The process of integrating any acquired business
 may create unforeseen operating difficulties and expenditures and is itself risky. The areas where we may face difficulties include:

        •       diversion of management time, as well as a shift of focus from operating the businesses to issues related to integration
                and administration, particularly given the number, size and varying scope of our recent acquisitions;

        •       the need to integrate each company's accounting, management, information, human resource and other administrative
                systems to permit effective management, and the lack of control if such integration is delayed or not implemented;

        •       the need to implement controls, procedures and policies appropriate for a public company at companies that prior to
                acquisition had lacked such controls, procedures and policies;

        •       in some cases, the need to transition operations and subscribers onto our existing platforms; and

        •       liability for activities of the acquired company before the acquisition, including violations of laws, rules and
                regulations, commercial disputes, tax liabilities and other known and unknown liabilities.

      Moreover, we may not realize the anticipated benefits of any or all of our acquisitions, or we may not realize them in the time
 frame expected. Future acquisitions or mergers may require us to issue additional equity securities, spend a substantial portion of our
 available cash, or incur debt or liabilities, amortize expenses related to intangible assets or incur write-offs of goodwill, which could
 adversely affect our results of operations and dilute the economic and voting rights of our stockholders.

 Our total number of subscribers may be higher than the number of our actual subscribers and may not be representative of the
 number of persons who are active potential customers.

      Our total number of subscribers may be higher than the number of our actual subscribers because some subscribers have multiple
 registrations, other subscribers have died or become incapacitated and others may have registered under fictitious names. Given the
 challenges inherent in identifying these subscribers, we do not have a reliable system to accurately identify the number of actual
 subscribers, and thus we rely on the number of total subscribers as our measure of the size of our subscriber base. In addition, the
 number of subscribers includes the total number of individuals that have completed registration through a specific date, less
 individuals who have unsubscribed, and should not be considered as representative of the number of persons who continue to actively
 consider our deals by reviewing our email offers.

                                                                    23




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                              Page 32 of 269
groupon.htm                                                                                                                                 6/2/11 12:35 PM


 Table of Contents



 Our business may be subject to seasonal sales fluctuations which could result in volatility or have an adverse effect on the market
 price of our common stock.

      Our business, like that of our merchants, may be subject to some degree of sales seasonality. As the growth of our business
 stabilizes, these seasonal fluctuations may become more evident. Seasonality may cause our working capital cash flow requirements
 to vary from quarter to quarter depending on the variability in the volume and timing of sales. These factors, among other things,
 make forecasting more difficult and may adversely affect our ability to manage working capital and to predict financial results
 accurately, which could adversely affect the market price of our common stock.

 We depend on the continued growth of online commerce.

       The business of selling goods and services over the internet, particularly through coupons, is dynamic and relatively new.
 Concerns about fraud, privacy and other problems may discourage additional consumers and merchants from adopting the internet as a
 medium of commerce. In countries such as the U.S., Germany, the United Kingdom, France and Japan, where our services and online
 commerce generally have been available for some time and the level of market penetration of our services is high, acquiring new
 subscribers for our services may be more difficult and costly than it has been in the past. In order to expand our subscriber base, we
 must appeal to and acquire subscribers who historically have used traditional means of commerce to purchase goods and services and
 may prefer internet analogues to our offerings, such as the retailer's own website. If these consumers prove to be less active than our
 earlier subscribers, or we are unable to gain efficiencies in our operating costs, including our cost of acquiring new subscribers, our
 business could be adversely impacted.

 Our business is subject to interruptions, delays or failures resulting from earthquakes, other natural catastrophic events or
 terrorism.

      Our services, operations and the data centers from which we provide our services are vulnerable to damage or interruption from
 earthquakes, fires, floods, power losses, telecommunications failures, terrorist attacks, acts of war, human errors, break-ins and
 similar events. A significant natural disaster, such as an earthquake, fire or flood, could have a material adverse impact on our
 business, financial condition and results of operations and our insurance coverage may be insufficient to compensate us for losses that
 may occur. Acts of terrorism could cause disruptions to the internet, our business or the economy as a whole. We may not have
 sufficient protection or recovery plans in certain circumstances, such as natural disasters affecting areas where data centers upon
 which we rely are located, and our business interruption insurance may be insufficient to compensate us for losses that may occur.
 Such disruptions could negatively impact our ability to run our websites, which could harm our business.

 Our results of operations may be negatively impacted by investments we make as we enter new product and service categories.

      We have offered Groupons in over 140 different types of businesses, services and activities that fall into six broad categories. We
 intend to continue to invest in the development of our existing categories and to expand into new categories. We may make
 substantial investments in such new categories in anticipation of future revenue. We may also face greater competition in specific
 categories from internet sites that are more focused on such categories. If the launch of a new category requires investments greater
 than we expect, if we are unable to generate sufficient merchant offers which are of high quality, value and variety or if the revenue
 generated from a new category grows more slowly or produces lower gross profit than we expect, our results of operations could be
 adversely impacted.

                                                                   24




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                             Page 33 of 269
groupon.htm                                                                                                                                   6/2/11 12:35 PM


 Table of Contents




 Failure to deal effectively with fraudulent transactions and subscriber disputes would increase our loss rate and harm our
 business.

      Groupons are issued in the form of redeemable coupons with unique identifiers. It is possible that consumers or other third parties
 will seek to create counterfeit Groupons in order to fraudulently purchase discounted goods and services from our merchants. While
 we use advanced anti-fraud technologies, it is possible that technically knowledgeable criminals will attempt to circumvent our anti-
 fraud systems using increasingly sophisticated methods. In addition, our service could be subject to employee fraud or other internal
 security breaches, and we may be required to reimburse consumers and/or merchants for any funds stolen or revenue lost as a result of
 such breaches. Our merchants could also request reimbursement, or stop using Groupon, if they are affected by buyer fraud or other
 types of fraud.

      We may incur significant losses from fraud and counterfeit Groupons. We may incur losses from claims that the consumer did
 not authorize the purchase, from merchant fraud, from erroneous transmissions, and from consumers who have closed bank accounts
 or have insufficient funds in them to satisfy payments. In addition to the direct costs of such losses, if they are related to credit card
 transactions and become excessive, they could potentially result in our losing the right to accept credit cards for payment. If we were
 unable to accept credit cards for payment, we would suffer substantial reductions in revenue, which would cause our business to
 suffer. While we have taken measures to detect and reduce the risk of fraud, these measures need to be continually improved and may
 not be effective against new and continually evolving forms of fraud or in connection with new product offerings. If these measures
 do not succeed, our business will suffer.

 We are exposed to fluctuations in currency exchange rates and interest rates.

      Because we conduct a significant and growing portion of our business outside the United States but report our financial results in
 U.S. dollars, we face exposure to adverse movements in currency exchange rates. The results of operations of our International
 segment are exposed to foreign exchange rate fluctuations as the financial results are translated from the local currency into U.S.
 dollars upon consolidation. If the U.S. dollar weakens against foreign currencies, the translation of these foreign currency
 denominated transactions will result in increased revenue, operating expenses and net income. Similarly, if the U.S. dollar strengthens
 against foreign currencies, the translation of these foreign currency denominated transaction will result in decreased revenue,
 operating expenses and net income. As exchange rates vary, sales and other operating results, when translated, may differ materially
 from expectations.

     In addition, we face exposure to fluctuations in interest rates which may impact our investment income unfavorably.

 We are subject to payments-related risks.

      We accept payments using a variety of methods, including credit card, debit card and gift certificates. As we offer new payment
 options to consumers, we may be subject to additional regulations, compliance requirements and fraud. For certain payment methods,
 including credit and debit cards, we pay interchange and other fees, which may increase over time and raise our operating costs and
 lower profitability. We rely on third parties to provide payment processing services, including the processing of credit cards and debit
 cards and it could disrupt our business if these companies become unwilling or unable to provide these services to us. We are also
 subject to payment card association operating rules, certification requirements and rules governing electronic funds transfers, which
 could change or be reinterpreted to make it difficult or impossible for us to comply. If we fail to comply with these rules or
 requirements, we may be subject to fines and higher transaction fees and lose our ability to accept credit and debit card payments
 from consumers or facilitate other types of online payments, and our business and operating results could be adversely affected.

                                                                    25




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                               Page 34 of 269
groupon.htm                                                                                                                                 6/2/11 12:35 PM


 Table of Contents

       We are also subject to or voluntarily comply with a number of other laws and regulations relating to money laundering,
 international money transfers, privacy and information security and electronic fund transfers. If we were found to be in violation of
 applicable laws or regulations, we could be subject to civil and criminal penalties or forced to cease our payments services business.

 Federal laws and regulations, such as the Bank Secrecy Act and the USA PATRIOT Act and similar foreign laws, could be
 expanded to include Groupons.

      Various federal laws, such as the Bank Secrecy Act and the USA PATRIOT Act and foreign laws and regulations, such as the
 European Directive on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing,
 impose certain anti-money laundering requirements on companies that are financial institutions or that provide financial products and
 services. For these purposes, financial institutions are broadly defined to include money services businesses such as money
 transmitters, check cashers and sellers or issuers of stored value cards. Examples of anti-money laundering requirements imposed on
 financial institutions include subscriber identification and verification programs, record retention policies and procedures and
 transaction reporting. We do not believe that we are a financial institution subject to these laws and regulations based, in part, upon
 the characteristics of Groupons and our role with respect to the distribution of Groupons to subscribers. However, the Financial
 Crimes Enforcement Network, a division of the U.S. Treasury Department tasked with implementing the requirements of the Bank
 Secrecy Act, recently proposed amendments to the scope and requirements for parties involved in stored value or prepaid access
 cards, including a proposed expansion of financial institutions to include sellers or issuers of prepaid access cards. In the event that
 this proposal is adopted as proposed, it is possible that a Groupon could be considered a financial product and that we could be a
 financial institution. In the event that we become subject to the requirements of the Bank Secrecy Act or any other anti-money
 laundering law or regulation imposing obligations on us as a money services business, our regulatory compliance costs to meet these
 obligations would likely increase which could reduce our net income.

 State and foreign laws regulating money transmission could be expanded to include Groupons.

      Many states and certain foreign jurisdictions impose license and registration obligations on those companies engaged in the
 business of money transmission, with varying definitions of what constitutes money transmission. We do not currently believe we are
 a money transmitter given our role and the product terms of Groupons. However, a successful challenge to our position or expansion
 of state or foreign laws could subject us to increased compliance costs and delay our ability to offer Groupons in certain jurisdictions
 pending receipt of any necessary licenses or registrations.

 Current uncertainty in global economic conditions could adversely affect our revenue and business.

     Our operations and performance depend on worldwide economic conditions, which deteriorated significantly in the United States
 and other countries in late 2008 and through 2009. The current economic environment continues to be uncertain. These conditions
 may make it difficult for our merchants to accurately forecast and plan future business activities, and could cause our merchants to
 terminate their relationships with us or could cause our subscribers to slow or reduce their spending. Furthermore, during challenging
 economic times, our merchants may face issues gaining timely access to sufficient credit, which could result in their unwillingness to
 continue with our service or impair their ability to make timely payments to us. If that were to occur, we may experience decreased
 revenue, be required to increase our allowance for doubtful accounts and our days receivables outstanding would be negatively
 impacted. If we are unable to finance our operations on acceptable terms as a result of renewed tightening in the credit markets, we
 may experience increased costs or we may not be able to effectively manage our business. We cannot predict the timing, strength or
 duration of any economic slowdown or subsequent economic

                                                                   26




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                             Page 35 of 269
groupon.htm                                                                                                                                    6/2/11 12:35 PM


 Table of Contents




 recovery, worldwide, in the United States or in our industry. These and other economic factors could have a material adverse effect on
 our financial condition and operating results.

 Our management team has a limited history of working together and may not be able to execute our business plan.

      Our management team has worked together for only a limited period of time and has a limited track record of executing our
 business plan as a team. We have recently filled a number of positions in our senior management and finance and accounting staff.
 Accordingly, certain key personnel have only recently assumed the duties and responsibilities they are now performing. In addition,
 certain of our executives have limited experience managing a large global business operation. Accordingly, it is difficult to predict
 whether our management team, individually and collectively, will be effective in operating our business.

 Our management team has limited experience managing a public company, and regulatory compliance may divert its attention
 from the day-to-day management of our business.

      The individuals who now constitute our management team have limited experience managing a publicly-traded company and
 limited experience complying with the increasingly complex laws pertaining to public companies. Our management team may not
 successfully or efficiently manage our transition to being a public company that will be subject to significant regulatory oversight and
 reporting obligations under the federal securities laws. In particular, these new obligations will require substantial attention from our
 senior management and could divert their attention away from the day-to-day management of our business, which could materially
 and adversely impact our business operations.

 We will incur increased costs as a result of being a public company.

      We will face increased legal, accounting, administrative and other costs and expenses as a public company that we do not incur as
 a private company. The Sarbanes-Oxley Act of 2002, including the requirements of Section 404, as well as new rules and regulations
 subsequently implemented by the Securities and Exchange Commission, or the SEC, the Public Company Accounting Oversight
 Board and the exchange on which our Class A common stock is listed, impose additional reporting and other obligations on public
 companies. We expect that compliance with these public company requirements will increase our costs and make some activities more
 time-consuming. A number of those requirements will require us to carry out activities we have not done previously. For example,
 we will adopt new internal controls and disclosure controls and procedures. In addition, we will incur additional expenses associated
 with our SEC reporting requirements. For example, under Section 404 of the Sarbanes-Oxley Act, for our annual report on Form 10-
 K for our fiscal year ending December 31, 2012, we will need to document and test our internal control procedures, our management
 will need to assess and report on our internal control over financial reporting and our independent registered public accounting firm
 will need to issue an opinion on the effectiveness of those controls. Furthermore, if we identify any issues in complying with those
 requirements (for example, if we or our accountants identify a material weakness or significant deficiency in our internal control over
 financial reporting), we could incur additional costs rectifying those issues, and the existence of those issues could adversely affect us,
 our reputation or investor perceptions of us. We also expect that it will be difficult and expensive to obtain director and officer
 liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain
 the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified persons to serve on our board
 of directors or as executive officers. Advocacy efforts by stockholders and third-parties may also prompt even more changes in
 corporate governance and reporting requirements. We expect that the additional reporting and other obligations imposed on us by
 these rules and regulations will increase our legal and financial compliance costs and the costs of our related legal, accounting and
 administrative activities significantly. These increased costs will require us to divert a significant amount of money that we could
 otherwise use to expand our business and achieve our strategic objectives.

                                                                     27




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                                Page 36 of 269
groupon.htm                                                                                                                                  6/2/11 12:35 PM


 Table of Contents



 Our ability to raise capital in the future may be limited, and our failure to raise capital when needed could prevent us from
 growing.

      We may in the future be required to raise capital through public or private financing or other arrangements. Such financing may
 not be available on acceptable terms, or at all, and our failure to raise capital when needed could harm our business. Additional equity
 financing may dilute the interests of our common stockholders, and debt financing, if available, may involve restrictive covenants and
 could reduce our profitability. If we cannot raise funds on acceptable terms, we may not be able to grow our business or respond to
 competitive pressures.

 Risks Related to the Securities Markets and Ownership of Our Class A Common Stock

 Our Class A common stock has no prior market. We cannot assure you that our stock price will not decline after the offering.

      Before this offering, there has not been a public market for our Class A common stock, and an active public market for our
 Class A common stock may not develop or be sustained after this offering. The market price of our Class A common stock could be
 subject to significant fluctuations after this offering. The price of our stock may change in response to variations in our operating
 results and also may change in response to other factors, including factors specific to technology companies, many of which are
 beyond our control. Among the factors that could affect our stock price are:

        •       the financial projections that we may choose to provide to the public, any changes in these projections or our failure
                for any reason to meet these projections;

        •       the development and sustainability of an active trading market for our Class A common stock;

        •       success of competitive products or services;

        •       the public's response to press releases or other public announcements by us or others, including our filings with the
                SEC and announcements relating to litigation;

        •       speculation about our business in the press or the investment community;

        •       future sales of our Class A common stock by our significant stockholders, officers and directors;

        •       changes in our capital structure, such as future issuances of debt or equity securities;

        •       our entry into new markets;

        •       regulatory developments in the United States or foreign countries;

        •       strategic actions by us or our competitors, such as acquisitions or restructurings; and

        •       changes in accounting principles.

     In particular, we cannot assure you that you will be able to resell your shares of our Class A common stock at or above the initial
 public offering price. The initial public offering price will be determined by negotiations between the representatives of the
 underwriters and us.

 The concentration of our capital stock ownership with our founders, executive officers, employees and directors and their affiliates
 will limit your ability to influence corporate matters.

      After this offering, our Class B common stock will have            votes per share and our Class A common stock, which is the
 stock we are selling in this offering, will have one vote per share. We anticipate that our founders, executive officers, employees and
 directors and their affiliates will together own approximately                   % of our outstanding capital stock, representing
 approximately       % of the voting power of our outstanding capital stock. In particular, following this offering, our founders, Eric P.
 Lefkofsky, Bradley A. Keywell and Andrew D. Mason, will control 100% of our outstanding Class B

                                                                    28




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                              Page 37 of 269
groupon.htm                                                                                                                                      6/2/11 12:35 PM


 Table of Contents



 common stock and approximately          % of our outstanding Class A common stock, representing approximately            % of the voting
 power of our outstanding capital stock. Messrs. Lefkofsky, Keywell and Mason will therefore have significant influence over
 management and affairs and over all matters requiring stockholder approval, including the election of directors and significant
 corporate transactions, such as a merger or other sale of our company or its assets, for the foreseeable future. In addition, because of
 this dual class structure, Messrs. Lefkofsky, Keywell and Mason will continue to be able to control all matters submitted to our
 stockholders for approval even if they own less than 50% of the outstanding shares of our capital stock. This concentrated control will
 limit your ability to influence corporate matters and, as a result, we may take actions that our stockholders do not view as beneficial.
 As a result, the market price of our Class A common stock could be adversely affected.

 Possible future sales of shares by our stockholders could negatively affect our stock price after this offering.

      Sales of a substantial number of shares of our Class A common stock in the public market after this offering, or the perception
 that these sales might occur, could depress the market price of our Class A common stock and could impair our ability to raise capital
 through the sale of additional equity securities. Based on the total number of shares of our common stock outstanding as of March 31,
 2011, upon completion of this offering, we will have                  shares of Class A common stock and 1,199,988 shares of Class B
 common stock outstanding, assuming no exercise of our outstanding options and the sale of                      shares of our Class A
 common stock to be sold by the selling stockholders.

      All of the shares of Class A common stock sold in this offering will be freely tradable without restrictions or further registration
 under the Securities Act of 1933, as amended, or the Securities Act, except for any shares held by our affiliates as defined in Rule 144
 under the Securities Act. Substantially all of the remaining               shares of Class A common stock and 1,199,988 shares of
 Class B common stock outstanding after this offering, based on shares outstanding as of March 31, 2011, will be restricted as a result
 of securities laws, lock-up agreements or other contractual restrictions that restrict transfers for at least 180 days after the date of this
 prospectus (or such earlier date or dates as agreed between us and Morgan Stanley & Co. LLC), subject to certain extensions.

      Morgan Stanley & Co. LLC may, in its sole discretion, release all or some portion of the shares subject to lock-up agreements
 prior to expiration of the lock-up period.

      We have established our 2010 Stock Plan, originally effective April 16, 2010 and most recently amended on April 1, 2011, or the
 2010 Plan. The 2010 Plan allows us to issue, among other things, stock options, restricted stock units and restricted stock to eligible
 employees (including our named executive officers), directors and advisors, as determined by the compensation committee of our
 board of directors. We also maintain the 2008 Stock Option Plan, originally effective January 15, 2008, or the 2008 Plan, pursuant to
 which stock options are currently outstanding (although no future awards may be granted under the 2008 Plan). We intend to file a
 registration statement under the Securities Act as soon as practicable after the completion of this offering to cover the issuance of
 shares upon the exercise of options granted under the 2010 Plan and the 2008 Plan, and of shares granted under the 2010 Plan. As a
 result, any shares issued or granted under the 2010 Plan after the completion of this offering also will be freely tradable in the public
 market, subject to lock-up agreements as applicable. If equity securities are issued under the 2010 Plan or the 2008 Plan and it is
 perceived that they will be sold in the public market, then the price of our Class A common stock could decline substantially.

 We will have broad discretion in using our net proceeds from this offering, and the benefits from our use of the proceeds may not
 meet investors' expectations.

      Our management will have broad discretion over the allocation of our net proceeds from this offering as well as over the timing
 of their use without stockholder approval. We have not yet determined how the net proceeds of this offering to be received by us that
 will be used, other than for working capital and other

                                                                      29




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                                  Page 38 of 269
groupon.htm                                                                                                                                    6/2/11 12:35 PM


 Table of Contents



 general corporate purposes. As a result, investors will be relying upon management's judgment with only limited information about
 our specific intentions for the use of our net proceeds from this offering. Our failure to apply these proceeds effectively could cause
 our business to suffer.

 If securities analysts do not publish research or if securities analysts or other third parties publish inaccurate or unfavorable
 research about us, the price of our Class A common stock could decline.

      The trading market for our Class A common stock will rely in part on the research and reports that securities analysts and other
 third parties choose to publish about us. We do not control these analysts or other third parties. The price of our Class A common
 stock could decline if one or more securities analysts downgrade our Class A common stock or if one or more securities analysts or
 other third parties publish inaccurate or unfavorable research about us or cease publishing reports about us.

 Because our existing investors paid substantially less than the initial public offering price when they purchased their shares, new
 investors will incur immediate and substantial dilution in their investment.

      Investors purchasing shares of Class A common stock in this offering will incur immediate and substantial dilution in net tangible
 book value per share because the price that new investors pay will be substantially greater than the net tangible book value per share
 of the shares acquired. This dilution is due in large part to the fact that our existing investors paid substantially less than the initial
 public offering price when they purchased their shares of Class A common stock. In addition, upon the completion of this offering,
 there will be options to purchase 12,305,008 shares of our Class A common stock outstanding and restricted stock units with respect
 to 2,649,856 shares of Class A common stock, based on the number of options and restricted stock units outstanding on March 31,
 2011. To the extent such options are exercised in the future, there will be further dilution to new investors.

       The initial public offering price for the shares sold in this offering was determined by negotiations between us and the
 representatives of the underwriters and may not be indicative of prices that will prevail in the trading market. See "Underwriting" for
 a discussion of the determination of the initial public offering price.

 We do not intend to pay dividends for the foreseeable future.

      We intend to retain all of our earnings for the foreseeable future to finance the operation and expansion of our business and do
 not anticipate paying cash dividends. As a result, you can expect to receive a return on your investment in our Class A common stock
 only if the market price of the stock increases.

 Provisions in our charter documents and under Delaware law could discourage a takeover that stockholders may consider
 favorable.

      Provisions in our certificate of incorporation and bylaws, as amended and restated upon the closing of this offering, may have the
 effect of delaying or preventing a change of control or changes in our management. These provisions include the following:

        •       Our certificate of incorporation provides for a dual class common stock structure. As a result of this structure, our
                founders will have significant influence over all matters requiring stockholder approval, including the election of
                directors and significant corporate transactions, such as a merger or other sale of our company or its assets. This
                concentrated control could discourage others from initiating any potential merger, takeover or other change of control
                transaction that other stockholders may view as beneficial.

                                                                     30




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                                Page 39 of 269
groupon.htm                                                                                                                                  6/2/11 12:35 PM


 Table of Contents

        •       Our board of directors has the right to elect directors to fill a vacancy created by the expansion of the board of
                directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill
                vacancies on our board of directors.

        •       Special meetings of our stockholders may be called only by our Executive Chairman of the Board, our Chief Executive
                Officer, our board of directors or holders of not less than the majority of our issued and outstanding capital stock. This
                limits the ability of minority stockholders to take certain actions without an annual meeting of stockholders.

        •       Our stockholders may not act by written consent unless the action to be effected and the taking of such action by
                written consent is approved in advance by our board of directors. As a result, a holder, or holders, controlling a
                majority of our capital stock would generally not be able to take certain actions without holding a stockholders'
                meeting.

        •       Our certificate of incorporation prohibits cumulative voting in the election of directors. This limits the ability of
                minority stockholders to elect director candidates.

        •       Stockholders must provide timely notice to nominate individuals for election to the board of directors or to propose
                matters that can be acted upon an annual meeting of stockholders. These provisions may discourage or deter a
                potential acquiror from conducting a solicitation of proxies to elect the acquiror's own slate of directors or otherwise
                attempting to obtain control of our company.

        •       Our board of directors may issue, without stockholder approval, shares of undesignated preferred stock. The ability to
                authorize undesignated preferred stock makes it possible for our board of directors to issue preferred stock with voting
                or other rights or preferences that could impede the success of any attempt to acquire us.

     For a description of our capital stock, see "Description of Capital Stock."

                                                                    31




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                              Page 40 of 269
groupon.htm                                                                                                                                    6/2/11 12:35 PM


 Table of Contents


                                           SPECIAL NOTE REGARDING
                                 FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA

      This prospectus includes forward-looking statements. All statements other than statements of historical facts contained in this
 prospectus, including statements regarding our future results of operations and financial position, business strategy and plans and our
 objectives for future operations, are forward-looking statements. The words "believe," "may," "will," "estimate," "continue,"
 "anticipate," "intend," "expect" and similar expressions are intended to identify forward-looking statements. We have based these
 forward-looking statements largely on our current expectations and projections about future events and financial trends that we
 believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and
 objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions,
 including those described in "Risk Factors." Moreover, we operate in a very competitive and rapidly changing environment. New
 risks emerge from time-to-time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors
 on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those
 contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking
 events and circumstances discussed in this prospectus may not occur and actual results could differ materially and adversely from
 those anticipated or implied in the forward-looking statements.

     Factors that may cause actual results to differ from expected results include, among others:

        •       our future financial performance, including our revenue, gross profit, operating expenses and our ability to attain or
                increase profitability;

        •       our ability to retain and grow our merchant and subscriber bases;

        •       competition in our business;

        •       our ability to recover subscriber acquisition costs;

        •       our ability to maintain favorable payment terms with our merchants;

        •       our liability with respect to unredeemed Groupons or increases in refund rates;

        •       restrictions on our ability to send emails or messages;

        •       our international expansion;

        •       the effect of laws applying to our business;

        •       our ability to maintain the network infrastructure necessary to operate our websites and applications;

        •       our ability to adequately protect our intellectual property rights; and

        •       the increased costs associated with being a public company.

      You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations
 reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance
 or events and circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, neither we nor any
 other person assumes responsibility for the accuracy and completeness of the forward-looking statements. We undertake no obligation
 to update publicly any forward-looking statements for any reason after the date of this prospectus to conform these statements to
 actual results or to changes in our expectations.

      You should read this prospectus and the documents that we reference in this prospectus and have filed with the SEC as exhibits
 to the registration statement of which this prospectus is a part with the understanding that our actual future results, levels of activity,
 performance and events and circumstances may be materially different from what we expect.

                                                                       32




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                                Page 41 of 269
groupon.htm                                                                                                                                6/2/11 12:35 PM


 Table of Contents

      Unless otherwise indicated, information contained in this prospectus concerning our industry and the market in which we operate,
 including our general expectations and market position, market opportunity and market size, is based on information from various
 sources, on assumptions that we have made that are based on those data and other similar sources and on our knowledge of the
 markets for our offerings. These data involve a number of assumptions and limitations, and you are cautioned not to give undue
 weight to such estimates. We have not independently verified any third-party information and cannot assure you of its accuracy or
 completeness. While we believe the market position, market opportunity and market size information included in this prospectus is
 generally reliable, such information is inherently imprecise. In addition, projections, assumptions and estimates of our future
 performance and the future performance of the industry in which we operate is necessarily subject to a high degree of uncertainty and
 risk due to a variety of factors, including those described in "Risk Factors" and elsewhere in this prospectus. These and other factors
 could cause results to differ materially from those expressed in the estimates made by the independent parties and by us.

                                                                   33




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                            Page 42 of 269
groupon.htm                                                                                                                                    6/2/11 12:35 PM


 Table of Contents


                                                          USE OF PROCEEDS

      We estimate that our net proceeds from the sale of the Class A common stock offered by us will be approximately
 $        million, assuming an initial public offering price of $       per share, which is the midpoint of the range reflected on the
 cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses
 payable by us. If the underwriters' option to purchase additional shares in this offering is exercised in full, we estimate that our net
 proceeds will be approximately $          , after deducting estimated underwriting discounts and commissions and estimated offering
 expenses payable by us. We will not receive any proceeds from the sale of shares of Class A common stock by the selling
 stockholders. A $1.00 increase or decrease in the assumed initial public offering price of $       per share would increase or decrease
 the net proceeds to us from the offering by approximately $         million, assuming the number of shares offered by us remains the
 same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly,
 each increase or decrease of one million shares in the number of shares of Class A common stock offered by us would increase or
 decrease the net proceeds to us from this offering by approximately $            million, assuming the assumed initial public offering
 price remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses
 payable by us.

      We intend to use the net proceeds to us from this offering for working capital and other general corporate purposes, which may
 include the acquisition of other businesses, products or technologies; however, we do not have any commitments for any acquisitions
 at this time. We will have broad discretion in the way we use the net proceeds. Pending use of the net proceeds as described above,
 we intend to invest the net proceeds in money market funds and investment grade debt securities.


                                                          DIVIDEND POLICY

      We declared dividends on our preferred stock in the amounts of $0.3 million, $5.6 million and $1.4 million in 2008, 2009 and
 2010, respectively. We declared dividends on our common stock in the amount of $21.3 million in 2009; we did not declare any
 dividends on our common stock in 2008 or 2010. We currently do not anticipate paying any cash dividends on our Class A common
 stock or Class B common stock in the foreseeable future. Any future determination to declare cash dividends will be made at the
 discretion of our board of directors, subject to applicable laws and will depend on our financial condition, results of operations, capital
 requirements, general business conditions and other factors that our board of directors may deem relevant.

                                                                     34




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                                Page 43 of 269
groupon.htm                                                                                                                                   6/2/11 12:35 PM


 Table of Contents


                                                          CAPITALIZATION

     The following table sets forth our cash and cash equivalents and capitalization as of March 31, 2011 on:

        •       an actual basis;

        •       a pro forma basis giving effect to (i) the recapitalization of all outstanding shares of our capital stock (other than our
                Series B preferred stock) into 296,140,145 shares of Class A common stock and all outstanding shares of our Series B
                preferred stock into 1,199,988 shares of Class B common stock immediately prior to the closing of this offering; and
                (ii) the amendment and restatement of our certificate of incorporation upon the closing of this offering; and

        •       a pro forma as adjusted basis giving further effect to the sale by us of Class A common stock in this offering at an
                assumed initial public offering price of $      per share, which is the midpoint of the range reflected on the cover
                page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering
                expenses payable by us.

       The information below is illustrative only and our cash and cash equivalents and capitalization following the completion of this
 offering will be based on the actual initial public offering price and other terms of this offering determined at pricing. You should read
 this table together with "Management's

                                                                    35




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                               Page 44 of 269
groupon.htm                                                                                                                                                                6/2/11 12:35 PM


 Table of Contents



 Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and related
 notes included elsewhere in this prospectus.

                                                                                                               As of March 31, 2011
                                                                                                                                   Pro Forma
                                                                                                                                       As
                                                                                                      Actual       Pro Forma       Adjusted(1)
                                                                                                                    (unaudited)
                                                                                                                  (in thousands)
              Cash and cash equivalents                                                             $   208,688 $                $
              Total debt                                                                            $         —      $               $
              Redeemable noncontrolling interests                                                          2,744
              Stockholders' (deficit) equity:
              Common Stock
                Class A Common Stock, par value $0.0001 per share, no shares authorized, no
                  shares issued and outstanding, actual;          shares authorized,
                  296,140,145 shares issued and outstanding, pro forma;            shares
                  authorized,           shares issued and outstanding, pro forma as adjusted                   —
                Class B Common Stock, par value $0.0001 per share, no shares authorized, no
                  shares issued and outstanding, actual;          shares         authorized,
                  1,199,988 shares issued and outstanding, pro forma;            shares
                  authorized,          shares issued and outstanding, pro forma as adjusted                    —
                Voting common stock, $0.0001 par value, 500,000,000 shares authorized,
                  211,495,998 shares issued and 144,681,311 shares outstanding, actual; no
                  shares authorized, no shares issued and outstanding, pro forma and pro forma
                  as adjusted                                                                                   4
                Non-voting convertible common stock, $0.0001 par value, 100,000,000 shares
                  authorized, 8,230,928 shares issued and 5,997,640 shares outstanding, actual;
                  no shares authorized, no shares issued and outstanding, pro forma and pro
                  forma as adjusted                                                                            —
              Preferred Stock
                Preferred Stock, par value $0.0001 per share, no shares authorized, issued and
                  outstanding, actual;          authorized, no shares issued and outstanding, pro
                  forma and pro forma as adjusted                                                              —
                Series B, convertible preferred stock, $0.0001 par value, 199,998 shares
                  authorized, issued and outstanding, actual; no shares authorized, no shares
                  issued and outstanding, pro forma and pro forma as adjusted                                  —
                Series D, convertible preferred stock, $0.0001 par value, 6,560,174 shares
                  authorized and 5,956,420 shares issued and outstanding, actual; no shares
                  authorized, no shares issued and outstanding, pro forma and pro forma as
                  adjusted                                                                                     —
                Series E, convertible preferred stock, $0.0001 par value, 4,406,160 shares
                  authorized and 4,060,183 shares issued and outstanding, actual; no shares
                  authorized, no shares issued and outstanding, pro forma and pro forma as
                  adjusted                                                                                     —
                Series F, convertible preferred stock, $0.0001 par value, 4,202,658 shares
                  authorized, issued and outstanding, actual; no shares authorized, no shares
                  issued and outstanding, pro forma and pro forma as adjusted                                   1
                Series G, convertible preferred stock, $0.0001 par value, 30,075,690 shares
                  authorized, and 30,072,814 shares issued and outstanding, actual; no shares
                  authorized, no shares issued and outstanding, pro forma and pro forma as
                  adjusted                                                                                      3
              Treasury stock                                                                             (856,723)
              Additional paid-in capital                                                                1,373,173
              Stockholder receivable                                                                         (144)
              Accumulated deficit                                                                        (522,136)
              Accumulated other comprehensive income                                                       12,908

                Total Groupon, Inc. stockholders' equity                                                   7,086

                    Total capitalization                                                            $      9,830     $               $



              (1)         Each $1.00 increase (decrease) in the assumed initial public offering price of $        per share would increase (decrease) the amount of pro
                          forma as adjusted cash and cash equivalents, additional paid-in capital, total Groupon, Inc. stockholders' equity and total capitalization we
                          receive from this offering by approximately $          million, assuming the number of shares offered by us, as set forth on the cover page of
                          this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses
                          payable by us. Similarly, each increase (decrease) of one million shares in the number of shares of Class A common stock offered by us would
                          increase (decrease) cash and cash equivalents,


                                                                                  36




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                                                            Page 45 of 269
groupon.htm                                                                                                                                                           6/2/11 12:35 PM


 Table of Contents

                        additional paid-in capital, total Groupon, Inc. stockholders' equity and total capitalization by approximately $    million, assuming the
                        assumed initial public offering price remains the same and after deducting estimated underwriting discounts and commissions and estimated
                        offering expenses payable by us.


                     The table above excludes the following shares:


                        •         1,199,988 shares of Class A common stock issuable upon the conversion of our Class B common stock that will be outstanding after
                                  this offering;


                        •         12,305,008 shares of Class A common stock issuable upon the exercise of stock options outstanding as of March 31, 2011 at a
                                  weighted average exercise price of $2.23 per share;

                        •         600,000 shares of Class A common stock issuable upon the vesting of performance stock units granted in connection with certain of
                                  our acquisitions;


                        •         2,649,856 shares of Class A common stock issuable upon the vesting of restricted stock units granted under our 2010 Plan; and

                        •         1,288,376 shares of Class A common stock available for additional grants under our 2010 Plan.


                                                                                37




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                                                       Page 46 of 269
groupon.htm                                                                                                                                   6/2/11 12:35 PM


 Table of Contents


                                                               DILUTION

      If you invest in our Class A common stock, your investment will be diluted immediately to the extent of the difference between
 the public offering price per share of our Class A common stock and the pro forma net tangible book value per share of our Class A
 and Class B common stock after this offering. Our pro forma net tangible book value as of March 31, 2011 was a deficit of
 approximately $(190.3) million, or $(0.64) per share of Class A and Class B common stock. Pro forma net tangible book value per
 share represents the amount of our total tangible assets, less our total liabilities, divided by the number of shares of Class A and
 Class B common stock outstanding as of March 31, 2011, after giving effect to the recapitalization of all outstanding shares of our
 capital stock (other than our Series B preferred stock) into 296,140,145 shares of Class A common stock and all outstanding shares of
 our Series B preferred stock into 1,199,988 shares of Class B common stock immediately prior to the closing of this offering.

       Net tangible book value dilution per share to new investors represents the difference between the amount per share paid by
 purchasers of shares of Class A common stock in this offering and the pro forma net tangible book value per share of Class A and
 Class B common stock immediately after the completion of this offering. After giving effect to our sale of shares of Class A common
 stock in this offering at an assumed initial public offering price of $     per share, which is the midpoint of the range set forth on the
 cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses
 payable by us, our pro forma net tangible book value as of March 31, 2011 would have been $                million, or $        per share.
 This represents an immediate increase in net tangible book value of $             per share to existing stockholders and an immediate
 dilution in net tangible book value of $        per share to investors purchasing Class A common stock in this offering, as illustrated
 in the following table:

              Assumed initial public offering price per share of Class A common stock                          $
                Pro forma net tangible book value per share as of March 31, 2011                 $
                Increase per share attributable to this offering                                 $
              Pro forma net tangible book value per share, as adjusted to give effect to this
                 offering                                                                                      $
              Dilution per share to new investors                                                              $

      A $1.00 increase (decrease) in the assumed initial public offering price of $      per share, which is the midpoint of the range
 set forth on the cover page of this prospectus, would increase (decrease) our pro forma as adjusted net tangible book value per share
 by $        , assuming the number of shares offered by us remains the same as set forth on the cover page of this prospectus and after
 deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

       If the underwriters exercise their option to purchase additional shares of our Class A common stock in full, the pro forma as
 adjusted net tangible book value per share would be $          per share, the increase in pro forma net tangible book value per share to
 existing stockholders would be $          per share and the dilution per share to new investors purchasing shares in this offering would
 be $         per share.

      The following table presents, on a pro forma basis as of March 31, 2011, after giving effect to the sale of              shares of
 Class A common stock and recapitalization of all of our capital stock (other than our Series B preferred stock) into 296,140,145
 shares of Class A common stock and all outstanding shares of our Series B preferred stock into 1,199,988 shares of Class B common
 stock immediately prior to the closing of this offering, the differences between the existing stockholders and the purchasers of shares
 in

                                                                    38




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                               Page 47 of 269
groupon.htm                                                                                                                                    6/2/11 12:35 PM


 Table of Contents



 this offering with respect to the number of shares purchased from us, the total consideration paid and the average price paid per share:


                                                                  Shares Purchased          Total Consideration         Average
                                                                                                                        Price Per
                                                                 Number      Percent        Amount       Percent         Share
              Existing stockholders                                                    %$                          %$
              New public investors
              Total                                                            100.0%$                     100.0%

      A $1.00 increase (decrease) in the assumed initial public offering price of $       per share, which is the midpoint of the range
 set forth on the cover page of this prospectus, would increase (decrease) total consideration paid by new investors by $         , total
 consideration paid by all stockholders by $        and the average price per share paid by all stockholders by $        , in each case
 assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and without
 deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

     The foregoing calculations are based on 296,140,145 shares of our Class A common stock outstanding as of March 31, 2011 and
 exclude:

        •       1,199,988 shares of Class A common stock issuable upon the conversion of our Class B common stock that will be
                outstanding after this offering;

        •       12,305,008 shares of Class A common stock issuable upon the exercise of stock options outstanding as of March 31,
                2011 at a weighted average exercise price of $2.23 per share;

        •       600,000 shares of Class A common stock issuable upon the vesting of performance stock units granted in connection
                with certain of our acquisitions;

        •       2,649,856 shares of Class A common stock issuable upon the vesting of restricted stock units granted under our 2010
                Plan; and

        •       1,288,376 shares of Class A common stock available for additional grants under our 2010 Plan.

       Sales by the selling stockholders in this offering will cause the number of shares held by existing stockholders to be reduced
 to                shares, or       % of the total number of shares of our Class A and Class B common stock outstanding after this
 offering. If the underwriters' overallotment option is exercised in full, the number of shares held by the existing stockholders after this
 offering would be reduced to           , or    % of the total number of shares of our Class A and Class B common stock outstanding
 after this offering, and the number of shares held by new investors would increase to         , or     % of the total number of shares of
 our Class A common stock outstanding after this offering.

      To the extent that any outstanding options are exercised or outstanding restricted stock units vest, new investors will experience
 further dilution. If all of these options were exercised and all of these restricted stock units vest, then our existing stockholders,
 including the holders of these options and restricted stock units, would own          % and our new investors would own        % of the
 total number of shares of our Class A and Class B common stock outstanding upon the closing of this offering. The net tangible book
 value per share after this offering would be $      , causing dilution to new investors of $       per share.

                                                                     39




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                                Page 48 of 269
groupon.htm                                                                                                                                  6/2/11 12:35 PM


 Table of Contents


                                SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

      The following table presents selected consolidated financial and other data as of and for the periods indicated. Financial
 information for periods prior to 2008 has not been provided because we began operations in 2008. The statements of operations data
 for the years ended December 31, 2008, 2009 and 2010 and the balance sheet data as of December 31, 2009 and 2010 are derived
 from our audited financial statements included elsewhere in this prospectus. The balance sheet data for the year ended December 31,
 2008 was derived from our unaudited financial statements which are not included in this prospectus. The summary consolidated
 statements of operations data for the periods ended March 31, 2010 and 2011 and the balance sheet data as of March 31, 2011 have
 been derived from our unaudited consolidated financials statements included elsewhere in this prospectus. The unaudited information
 was prepared on a basis consistent with that used to prepare our audited financial statements and includes all adjustments, consisting
 of normal and recurring items, that we consider necessary for a fair presentation of the unaudited period.

      We made several acquisitions during 2010, including the acquisitions of CityDeal and Qpod.inc., or Qpod. The consolidated
 statements of operations, balance sheets and statements of cash flows include the results of entities acquired from the effective date of
 the acquisition for accounting purposes.

      The following information should be read together with the more detailed information contained in "Management's Discussion
 and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and the accompanying
 notes.

                                                        Year Ended December 31,                   Three Months Ended March 31,
                                               2008              2009               2010               2010              2011
                                                                                                    (unaudited)       (unaudited)
                                                                  (dollars in thousands, except share data)
              Consolidated
                Statements of
                Operations Data:
              Revenue                   $              94 $        30,471 $         713,365 $            44,236 $         644,728
              Cost of revenue                          89          19,542           433,411              24,251           374,728
              Gross profit                              5          10,929           279,954              19,985           270,000
              Operating expenses:
                Marketing                             163           4,548           263,202               3,988           208,209
                Selling, general and
                  administrative                   1,474            7,458           233,913               7,426           178,939
                Acquisition-related                   —                —            203,183                  —                 —
                Total operating
                  expenses                         1,637           12,006           700,298              11,414           387,148
              (Loss) income from
                operations                        (1,632)          (1,077)         (420,344)              8,571          (117,148)
              Interest and other income
                (expense), net                         90               (16)               284                    3          1,060
              Equity-method
                investment activity,
                net of tax                             —                —                   —                 —               (882)
              (Loss) income before
                provision for income
                taxes                             (1,542)          (1,093)         (420,060)              8,574          (116,970)
              Provision (benefit) for
                income taxes                          —               248            (6,674)                 23            (3,079)
              Net (loss) income                   (1,542)          (1,341)         (413,386)              8,551          (113,891)
              Less: Net loss
                attributable to
                noncontrolling
                interests                              —                —             23,746                  —            11,223
              Net (loss) income
                attributable to
                Groupon, Inc.                     (1,542)          (1,341)         (389,640)              8,551          (102,668)
              Dividends on preferred
                stock                                 (277)        (5,575)            (1,362)               (523)               —
              Redemption of preferred
                stock in excess of
                carrying value                         —                —            (52,893)                 —           (34,327)
              Adjustment of
                redeemable
                noncontrolling

file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                              Page 49 of 269
groupon.htm                                                                                                                   6/2/11 12:35 PM


                interests to redemption
                value                               —                   —         (12,425)             —            (9,485)
              Preferred stock
                distributions                      (339)                —             —                —               —
              Net (loss) income
                attributable to
                common
                stockholders            $        (2,158) $        (6,916) $      (456,320) $        8,028 $       (146,480)
              Net (loss) income per
               share
               Basic                   $          (0.01) $         (0.04) $         (2.66) $          0.03 $         (0.95)
               Diluted                 $          (0.01) $         (0.04) $         (2.66) $          0.03 $         (0.95)
              Weighted average
               number of shares
               outstanding
               Basic                        166,738,129      168,604,142      171,349,386      172,966,829     153,924,706
               Diluted                      166,738,129      168,604,142      171,349,386      245,962,571     153,924,706

                                                                   40




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                               Page 50 of 269
groupon.htm                                                                                                                                                     6/2/11 12:35 PM


 Table of Contents



                                                                                                                     Three Months Ended
                                                                   Year Ended December 31,                                March 31,
                                                          2008           2009                 2010                 2010            2011
              Key Operating Metrics:
               Subscribers(1)                                  *       1,807,278            50,583,805            3,434,610       83,100,006
               Cumulative customers(2)                         *         375,099             9,031,807              874,017       15,803,995
               Featured merchants (3)                          *           2,695                66,289                2,903           56,781
               Groupons sold(4)                                *       1,248,792            30,296,070            1,760,398       28,094,743

              *        Not available

              (1)      Reflects the total number of subscribers on the last day of the applicable period.

              (2)      Reflects the total number of unique customers that have purchased Groupons from January 1, 2009 through the last day of the applicable
                       period.

              (3)      Reflects the total number of merchants featured in the applicable period.

              (4)      Reflects the total number of Groupons sold in the applicable period.



                                                                                                   As of December 31,                As of
                                                                                                                                   March 31,
                                                                                          2008          2009              2010       2011
                                                                                                                                  (unaudited)
                                                                                                               (in thousands)
              Consolidated Balance Sheet Data:
               Cash and cash equivalents                                               $ 2,966 $ 12,313 $ 118,833 $ 208,688
               Working capital (deficit)                                                 2,643    3,988  (196,564)  (228,748)
               Total assets                                                              3,006   14,962   381,570    541,410
               Total long-term liabilities                                                  —        —      1,621     14,790
               Redeemable preferred stock                                                4,747   34,712        —          —
               Total Groupon, Inc. stockholders' (deficit) equity                       (2,091) (29,969)    8,077      7,086

 Non-GAAP Financial Measures

     We use adjusted consolidated segment operating income, or Adjusted CSOI, and free cash flow as key non-GAAP financial
 measures. Adjusted CSOI and free cash flow are used in addition to and in conjunction with results presented in accordance with
 GAAP and should not be relied upon to the exclusion of GAAP financial measures.

       Adjusted CSOI is operating income of our two segments, North America and International, adjusted for online marketing
 expense, acquisition-related costs and stock-based compensation expense. Online marketing expense primarily represents the cost to
 acquire new subscribers and is determined by the amount of subscriber growth we wish to pursue. Acquisition-related costs are non-
 recurring non-cash items related to certain of our acquisitions. Stock-based compensation expense is a non-cash item. We consider
 Adjusted CSOI to be an important measure of the performance of our business as it excludes expenses that are non-cash or otherwise
 not indicative of future operating expenses. We believe it is important to view Adjusted CSOI as a complement to our entire
 consolidated statements of operations.

      Our use of Adjusted CSOI has limitations as an analytical tool, and you should not consider this measure in isolation or as a
 substitute for analysis of our results as reported under GAAP. Some of these limitations are:

        •         Adjusted CSOI does not reflect the significant cash investments that we currently are making to acquire new
                  subscribers;

        •         Adjusted CSOI does not reflect the potentially dilutive impact of issuing equity-based compensation to our
                  management team and employees or in connection with acquisitions;

        •         Adjusted CSOI does not reflect any interest expense or the cash requirements necessary to service interest or principal
                  payments on any indebtedness that we may incur;

                                                                                 41




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                                                 Page 51 of 269
groupon.htm                                                                                                                                6/2/11 12:35 PM


 Table of Contents

        •       Adjusted CSOI does not reflect any tax payments that we might make, which would represent a reduction in cash
                available to us;

        •       Adjusted CSOI does not reflect any foreign exchange gains and losses;

        •       Adjusted CSOI does not reflect changes in, or cash requirements for, our working capital needs; and

        •       other companies, including companies in our industry, may calculate Adjusted CSOI differently or may use other
                financial measures to evaluate their profitability, which reduces the usefulness of it as a comparative measure.

      Because of these limitations, Adjusted CSOI should not be considered as a measure of discretionary cash available to us to invest
 in the growth of our business. When evaluating our performance, you should consider Adjusted CSOI alongside other financial
 performance measures, including various cash flow metrics, net loss and our other GAAP results.

      Free cash flow, which is reconciled to "Net cash (used in) provided by operating activities," is cash flow from operations
 reduced by "Purchases of property and equipment." We use free cash flow, and ratios based on it, to conduct and evaluate our
 business because, although it is similar to cash flow from operations, we believe it typically will present a more conservative measure
 of cash flows as purchases of fixed assets, software developed for internal use and website development costs are a necessary
 component of ongoing operations.

       Free cash flow has limitations due to the fact that it does not represent the residual cash flow available for discretionary
 expenditures. For example, free cash flow does not include the cash payments for business acquisitions. In addition, free cash flow
 reflects the impact of the timing difference between when we are paid by customers and when we pay merchants. Therefore, we
 believe it is important to view free cash flow as a complement to our entire consolidated statements of cash flows.

                                                                   42




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                            Page 52 of 269
groupon.htm                                                                                                                      6/2/11 12:35 PM


 Table of Contents

        Adjusted CSOI

      The following is a reconciliation of Adjusted CSOI to the most comparable GAAP measure, "(Loss) income from operations,"
 for the years ended December 31, 2008, 2009 and 2010 and the first quarter of 2010 and 2011:

                                                                                                       Three Months Ended
                                                                  Year Ended December 31,                   March 31,
                                                           2008           2009           2010          2010         2011
                                                                                     (in thousands)
              (Loss) income from operations              $ (1,632) $ (1,077) $ (420,344) $              8,571 $ (117,148)
                Adjustments:
                Online marketing                              162          4,446       241,546          3,904      179,903
                Stock-based compensation                       24            115        36,168            116       18,864
                Acquisition-related                            —              —        203,183             —            —
                 Total adjustments                            186          4,561       480,897    4,020            198,767
              Adjusted CSOI                              $ (1,446) $       3,484 $      60,553 $ 12,591 $           81,619
              Adjusted Segment Operating
                 Income:
              North America                              $ (1,446) $       3,484 $       88,036 $ 12,591 $           38,610
              International                                    —              —         (27,483)      — $            43,009
              Adjusted CSOI                              $ (1,446) $       3,484 $       60,553 $ 12,591 $           81,619

        Free Cash Flow

     The following is a reconciliation of free cash flow to the most comparable GAAP measure, "Net cash (used in) provided by
 operating activities," for the years ended December 31, 2008, 2009 and 2010 and the first quarter of 2010 and 2011:

                                                                                                       Three Months Ended
                                                                    Year Ended December 31,                 March 31,
                                                              2008           2009         2010          2010        2011
                                                                                      (in thousands)
              Net cash (used in) provided by operating
                activities                                 $ (1,526) $ 7,510 $ 86,885 $ 12,897 $ 17,940
              Purchases of property and equipment               (19)    (290)  (14,681)   (863)  (10,962)
              Free cash flow                               $ (1,545) $ 7,220 $ 72,204 $ 12,034 $   6,978

                                                                     43




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                  Page 53 of 269
groupon.htm                                                                                                                                 6/2/11 12:35 PM


 Table of Contents


                      MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                                      AND RESULTS OF OPERATIONS

     You should read the following discussion together with our consolidated financial statements and the related notes included
 elsewhere in this prospectus. This discussion contains forward-looking statements about our business and operations. Our actual
 results may differ materially from those we currently anticipate as a result of many factors, including those we describe under "Risk
 Factors" and elsewhere in this prospectus. See "Special Note Regarding Forward-Looking Statements and Industry Data."

 Overview

      Groupon is a local e-commerce marketplace that connects merchants to consumers by offering goods and services at a discount.
 Traditionally, local merchants have tried to reach consumers and generate sales through a variety of methods, including the yellow
 pages, direct mail, newspaper, radio, television and online advertisements and promotions. By bringing the brick and mortar world of
 local commerce onto the internet, Groupon is creating a new way for local merchants to attract customers and sell goods and services.
 We provide consumers with savings and help them discover what to do, eat, see and buy in the places where they live and work.

       Each day we email our subscribers discounted offers for goods and services that are targeted by location and personal
 preferences. Consumers access our deals directly through our websites and mobile applications. Our revenue is the purchase price
 paid by the customer for the Groupon. Our gross profit is the amount of revenue we retain after paying an agreed upon percentage of
 the purchase price to the featured merchant. In 2010, we generated revenue of $713.4 million, compared to $30.5 million in 2009.
 During the first quarter of 2011, we generated revenue of $644.7 million, compared to $44.2 million in the first quarter of 2010.

      We have organized our operations into two principal segments: North America, which represents the United States and Canada;
 and International, which represents the rest of our global operations. For the first quarter of 2011, we derived 53.8% of our revenue
 from our International segment. We expect the percentage of total revenue derived from outside North America to increase in future
 periods as we continue to expand globally.

       We incurred a net loss of $102.7 million for the three months ended March 31, 2011 and have an accumulated deficit of
 $522.1 million as of March 31, 2011. Since our inception, we have driven our growth through substantial investments in
 infrastructure and marketing to drive subscriber acquisition. We intend to continue to pursue a strategy of significant investment in
 these areas.

 How We Measure Our Business

      We measure our business with several financial and operating metrics. We use these metrics to assess the progress of our
 business, make decisions on where to allocate capital, time and technology investments, and assess longer-term performance of our
 marketplace. The key metrics are as follows:

        Financial Metrics

        •       Gross profit. Our gross profit is the amount that we retain after paying our merchants an agreed upon percentage of
                the purchase price to the featured merchant. We believe gross profit is an important indicator for our business because
                it is a reflection of the value of our service to our merchants. Gross profit is influenced by the mix of deals we offer.
                For example, gross profit can vary depending on the category of product or service offered in a particular deal.
                Likewise, gross profit can be adversely impacted by offers that we make for the principal purpose of acquiring new
                subscribers or establishing our brand and building scale in a new market.

                                                                   44




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                             Page 54 of 269
groupon.htm                                                                                                                               6/2/11 12:35 PM


 Table of Contents

        •      Adjusted consolidated segment operating income. Adjusted CSOI is operating income of our two segments, North
               America and International, adjusted to add back online marketing expense, acquisition-related costs and stock-based
               compensation expense. Online marketing expense primarily represents the cost to acquire new subscribers and is
               determined by the amount of subscriber growth we wish to pursue and changes in online marketing rates. We believe
               that a relatively small portion of our current online marketing expense relates to existing subscribers. Acquisition-
               related costs are non-recurring non-cash items related to certain of our acquisitions. Stock-based compensation
               expense is a non-cash item. We consider Adjusted CSOI to be an important measure of the performance of our
               business after excluding expenses that are non-cash or otherwise not indicative of future operating expenses. See
               "Selected Consolidated Financial and Other Data—Non-GAAP Financial Measures" for further information.

        •      Free cash flow. Free cash flow is cash flow from operations less amounts paid for purchases of property and
               equipment, including internal-use software and website development. We believe free cash flow is an important
               indicator for our business because it measures the amount of cash we generate after spending on marketing, wages and
               benefits, capital expenditures and other items. Free cash flow also reflects changes in working capital. We use free
               cash flow to conduct and evaluate our business because we believe free cash flow captures the cash flow of our
               ongoing operations. See "Selected Consolidated Financial and Other Data—Non-GAAP Financial Measures" for
               further information.

        Operating Metrics

        •      Subscribers. We define subscribers as the total number of individuals that have completed registration through a
               specific date, less individuals who have unsubscribed. To sign up for our service and become a subscriber, an
               individual provides an email address. We can measure our overall growth in the market as well as our potential
               revenue opportunity as a function of our total subscriber base. The subscriber base does not take into consideration the
               activity level of the subscriber with our service, nor does it adjust for multiple or unused accounts. Despite these
               drawbacks, we believe this metric provides valuable insight about the trajectory and scale of our business. Although
               the vast majority of our revenue comes from subscribers, we also sell Groupons to customers that purchase as guests
               and, as such, are not included in our total subscriber number.

        •      Cumulative customers. We define cumulative customers as the total number of unique customers that have purchased
               Groupons from January 1, 2009 (the first date we began tracking unique customers) through a specific date. We
               consider this metric to be an important indicator of our business performance as it helps us to understand the purchase
               rate of our subscribers.

        •      Featured merchants. This metric represents the total number of merchants featured in a given time period. For deals
               offered on a nationwide basis, we count the national merchant once. For deals offered by national merchants on a local
               or regional basis, we count the national merchant as a separate merchant in each market in which the deal is offered.
               We consider this metric to be a good indicator of growth as well as an important measure of the effectiveness of our
               sales and marketing infrastructure.

        •      Groupons sold. This metric represents the total number of Groupons sold in a given time period. This metric is
               presented net of Groupons refunded during the same time period. We use this metric to measure our growth and
               activity level in the aggregate as well as in our individual markets.

                                                                 45




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                           Page 55 of 269
groupon.htm                                                                                                                                                    6/2/11 12:35 PM


 Table of Contents

       The following table is a summary of our key operating metrics for the years ended December 31, 2008, 2009 and 2010 and the
 first quarters of 2010 and 2011:

                                                                                                               Three Months Ended
                                                                          Year Ended December 31,                   March 31,
                                                                 2008           2009               2010       2010             2011
              Subscribers(1)                                          *      1,807,278         50,583,805   3,434,610       83,100,006
              Cumulative customers(2)                                 *        375,099          9,031,807     874,017       15,803,995
              Featured merchants (3)                                  *          2,695             66,289       2,903           56,781
              Groupons sold(4)                                        *      1,248,792         30,296,070   1,760,398       28,094,743

              *       Not available

              (1)     Reflects the total number of subscribers on the last day of the applicable period.

              (2)     Reflects the total number of unique customers that have purchased Groupons from January 1, 2009 through the last day of the applicable
                      period.

              (3)     Reflects the total number of merchants featured in the applicable period.

              (4)     Reflects the total number of Groupons sold in the applicable period.


 Factors Affecting Our Performance

       Subscriber acquisition costs. We must continue to acquire and retain subscribers who purchase Groupons in order to increase
 revenue and achieve profitability. We characterize online marketing expenses as subscriber acquisition costs because these expenses
 are intended to acquire new subscribers. We spent $179.9 million on online marketing initiatives relating to subscriber acquisition for
 the first quarter of 2011 and expect to continue to expend significant amounts to acquire additional subscribers. If consumers do not
 perceive our Groupon offerings to be of high value and quality, or if we fail to introduce new or more relevant deals, we may not be
 able to acquire or retain subscribers. In our limited operating history, we have not incurred significant marketing or other expense on
 initiatives designed to re-activate subscribers or increase the level of purchases by our existing subscribers. If such expenditures or
 initiatives become necessary to maintain a desired level of activity in our marketplace, our business and profitability could be
 adversely affected.

      Deal sourcing and quality. We consider our merchant relationships to be a vital part of our business model. We depend on our
 ability to attract and retain merchants that are prepared to offer products or services on compelling terms. We do not have long-term
 arrangements to guarantee availability of deals that offer attractive quality, value and variety to consumers or favorable payment
 terms to us. If new merchants do not find our marketing and promotional services effective, or if our existing merchants do not believe
 that utilizing our services provides them with a long-term increase in customers, revenues or profits, they may stop making offers
 through our marketplace.

      Competitive pressure. Our growth and geographical expansion have drawn a significant amount of attention to our business
 model. As a result, a substantial number of group buying sites that attempt to replicate our business model have emerged around the
 world. In addition to such competitors, we expect to increasingly compete against other large internet and technology-based
 businesses, such as Facebook, Google and Microsoft, each of which has launched initiatives which are directly competitive to our
 business. We also expect to compete against other internet sites that are focused on specific communities or interests and offer
 coupons or discount arrangements related to such communities or interests.

      Investment in growth. We are a high-growth company and have aggressively invested, and intend to continue to invest, to
 support this growth. As a result, we have incurred net losses in the majority of quarters since our inception. We anticipate that our
 operating expenses will increase substantially in the foreseeable future as we continue to increase the number and variety of deals we
 offer each day, broaden

                                                                                46




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                                                Page 56 of 269
groupon.htm                                                                                                                                6/2/11 12:35 PM


 Table of Contents




 our subscriber base, expand our marketing channels, expand our operations, hire additional employees and develop our technology.

      Pace and effectiveness of expansion. We have grown our business rapidly since inception, adding new subscribers and markets
 both domestically and internationally. Our international business has become critical to our revenue growth and our ability to achieve
 profitability. In 2010 and the first quarter of 2011, 37.2% and 53.8%, respectively, of our revenue was generated from our
 international operations. Expansion into international markets requires management attention and resources and requires us to localize
 our services to conform to a wide variety of local cultures, business practices, laws and policies. International acquisitions also
 expose us to a variety of execution risks. The different commercial and internet infrastructure in other countries may make it more
 difficult for us to replicate our traditional business model.

 Basis of Presentation

        Revenue

     Revenue primarily consists of the gross amount paid by customers for purchased Groupons, excluding any applicable taxes, less
 customer refunds and obligations related to credits earned for customer loyalty and reward programs.

        Cost of Revenue

     Cost of revenue primarily consists of the amounts paid to and accrued for our merchants associated with the sale of Groupons.

        Marketing

       We direct consumers to our websites and applications primarily through a number of targeted online marketing channels, such as
 sponsored search, social networking sites, portal advertising, email marketing campaigns, affiliate programs and other similar
 initiatives, which we consider to be subscriber acquisition costs. Our marketing expenses are largely variable, impacted by the amount
 of subscriber growth we wish to pursue and changes in online marketing rates. To the extent there is increased or decreased
 competition for these traffic sources, or to the extent our mix of these channels shifts, we would expect to see a corresponding change
 in our marketing expense. We also incur offline marketing costs from television, radio and print advertising.

      Marketing is the primary method by which we acquire subscribers, and as such, is a critical part of our growth strategy. Over
 time, as our business continues to scale and we become more established in a greater percentage of our markets, we expect that our
 marketing expense will decrease as a percentage of revenue.

        Selling, General and Administrative

      Selling, general and administrative expense primarily consists of wages and benefits (including stock-based compensation),
 credit card processing fees, consulting and professional fees, depreciation and amortization and technology-related costs.
 Approximately 50% of our employees were part of our salesforce as of March 31, 2011, and their compensation represented a
 significant portion of our selling, general and administrative expenses. Our salesforce is critical to growing and maintaining our
 merchant base and is the main source for driving new Groupon offers. We expect that our salesforce headcount will continue to grow
 over time as we continue to expand our business into new markets, but that our sales and marketing expense will decrease as a
 percentage of revenue.

                                                                   47




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                            Page 57 of 269
groupon.htm                                                                                                                                   6/2/11 12:35 PM


 Table of Contents

        Acquisition-Related

      In May 2010, we acquired CityDeal, a European-based collective buying power business launched in January 2010 that provided
 daily deals and online marketing services substantially similar to the Company. As part of the overall consideration paid, we were
 obligated to issue additional shares of our common stock in December 2010 due to the achievement of financial and performance
 earn-out targets. We recorded a liability on our consolidated balance sheet as of the original acquisition date for this consideration and
 subsequently remeasured the liability on a periodic basis until final settlement. As a result of this remeasurement, we recorded a total
 charge of $204.2 million in acquisition-related expenses in 2010, which was partially offset by other nominal acquisition-related
 items.

        Interest and Other Income (Expense)

      Interest and other income (expense) primarily consists of foreign currency gains and losses resulting from foreign currency
 transactions which are denominated in currencies other than our functional currencies and interest expense on our loans from related
 parties.

 Results of Operations

 Comparison of the Three Months Ended March 31, 2010 and 2011:

                                                                                                     Three Months Ended
                                                                                                          March 31,
                                                                                                     2010           2011
                                                                                                        (in thousands)
              Revenue                                                                            $ 44,236 $        644,728
              Cost of revenue                                                                      24,251          374,728
              Gross profit                                                                         19,985          270,000
              Operating expenses:
               Marketing                                                                              3,988        208,209
               Selling, general and administrative                                                    7,426        178,939
                Total operating expenses                                                           11,414          387,148
              Income (loss) from operations                                                         8,571         (117,148)
              Interest and other income, net                                                            3            1,060
              Equity-method investment activity, net of tax                                            —              (882)
              Income (loss) before provision for income taxes                                       8,574         (116,970)
              Provision (benefit) for income taxes                                                     23           (3,079)
              Net income (loss)                                                                     8,551         (113,891)
              Less: Net loss attributable to noncontrolling interests                                  —            11,223
              Net income (loss) attributable to Groupon, Inc.                                       8,551         (102,668)
              Dividends on preferred stock                                                           (523)              —
              Redemption of preferred stock in excess of carrying value                                —           (34,327)
              Adjustment of redeemable noncontrolling interests to redemption value                    —            (9,485)
              Net income (loss) attributable to common stockholders                              $ 8,028 $        (146,480)

                                                                    48




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                               Page 58 of 269
groupon.htm                                                                                                                               6/2/11 12:35 PM


 Table of Contents

     The following table reflects all of the line items of our statements of operations as a percentage of revenue for the three months
 ended March 31, 2010 and 2011:

                                                                                                     Three Months Ended
                                                                                                          March 31,
                                                                                                     2010         2011
              Revenue                                                                                100.0%       100.0%
              Cost of revenue                                                                         54.8         58.1
              Gross profit                                                                            45.2         41.9
              Operating expenses:
               Marketing                                                                                9.0        32.3
               Selling, general and administrative                                                     16.8        27.8
                Total operating expenses                                                               25.8        60.1
              Income (loss) from operations                                                            19.4       (18.2)
              Interest and other income, net                                                             —          0.2
              Equity-method investment activity, net of tax                                              —         (0.1)
              Income (loss) before provision for income taxes                                          19.4       (18.1)
              Provision (benefit) for income taxes                                                      0.1        (0.4)
              Net income (loss)                                                                        19.3       (17.7)
              Less: Net loss attributable to noncontrolling interests                                    —          1.8
              Net income (loss) attributable to Groupon, Inc.                                          19.3       (15.9)
              Dividends on preferred stock                                                             (1.2)         —
              Redemption of preferred stock in excess of carrying value                                  —         (5.3)
              Adjustment of redeemable noncontrolling interests to redemption value                      —         (1.5)
              Net income (loss) attributable to common stockholders                                    18.1%      (22.7)%

        Revenue

      For the three months ended March 31, 2010 and 2011, our revenue was $44.2 million and $644.7 million respectively, reflecting
 an increase of $600.5 million, or 1,357%. The increase in revenue was directly attributable to the increase in the number of Groupons
 we sold in the period compared to the same period of the prior year. The increase in the number of Groupons sold was driven by
 subscriber growth in our existing markets and our entry into new markets. In May 2010, we also began our international expansion by
 acquiring CityDeal, which added 1.9 million subscribers as of the date of the acquisition in several major European markets,
 including London, Berlin and Paris, and ended the year with operations in 38 countries. As a result of the entry into these new
 markets and growth in existing markets we added 79.7 million new subscribers from March 31, 2010 through March 31, 2011.

        Segment Revenue

                                                                    Three Months Ended March 31,
                                                            2010      % of total         2011    % of total
                                                                        (dollars in thousands)
                           North America                 $ 44,236         100.0%$ 297,897              46.2%
                           International                       —             —    346,831              53.8%
                             Revenue                     $ 44,236         100.0%$ 644,728             100.0%

                                                                   49




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                           Page 59 of 269
groupon.htm                                                                                                                                6/2/11 12:35 PM


 Table of Contents

      We had no international operations during the three months ended March 31, 2010. Subsequent to March 31, 2010, we added 132
 new North American markets and continued to grow in existing markets. Revenue for our International segment was $346.8 million
 for the three months ended March 31, 2011. In May 2010, we commenced our operations internationally with the purchase of
 CityDeal, a European-based local e-commerce business similar to ours, which operated in 80 markets in 16 countries with 1.9 million
 subscribers at the time of acquisition. We subsequently completed eight additional international acquisitions during 2010, which gave
 us access to markets and additional subscribers around the world.

        Cost of Revenue

      Cost of revenue as a percentage of revenue was 54.8% and 58.1% for the three months ended March 31, 2010 and 2011,
 respectively. The significant increase in the absolute cost of revenue is consistent with the growth of our revenue.

        Gross Profit

     Gross profit and gross margin for each of the periods presented were as follows:

                                                                                     Three Months Ended
                                                                                          March 31,
                                                                                      2010            2011
                                                                                     (dollars in thousands)
                           Gross profit                                          $      19,985 $ 270,000
                           Gross margin                                                   45.2%     41.9%

      Gross margin decreased as a percentage of revenue from 45.2% for the three months ended March 31, 2010 to 41.9% for the
 three months ended March 31, 2011. The decrease in gross margin was primarily due to the mix of offered deals. We also offered
 several national deals to generate revenue and increase brand awareness, which reduced our gross margin.

        Marketing

       Marketing expense as a percentage of revenue for the three months ended March 31, 2010 and 2011 was 9.0% and 32.3%,
 respectively. Our marketing expense increased by $204.2 million to $208.2 million for the three months ended March 31, 2011 as
 compared to March 31, 2010 primarily driven by investments in subscriber acquisition in new markets. We have focused the majority
 of our marketing spend online, particularly on social networking websites and search engines as part of our new subscriber acquisition
 strategy. For the three months ended March 31, 2011, marketing expense as a percentage of revenue for the North America and
 International segments was 26.4% and 37.3%, respectively. The higher marketing expense as a percentage of revenue for our
 International segment reflects our launch into new International markets.

        Selling, General and Administrative

      Selling, general and administrative expense as a percentage of revenue was 16.8% and 27.8% for the three months ended
 March 31, 2010 and 2011, respectively. The increase in selling, general and administrative expense as a percentage of revenue was
 principally related to the build out of our salesforce and investments in our corporate infrastructure necessary to support our current
 and anticipated growth.

     Our selling, general and administrative expense increased by $171.5 million to $178.9 million for the three months ended
 March 31, 2011 as compared to March 31, 2010.

      Wages and benefits (excluding stock-based compensation) increased by $77.7 million to $81.2 million for the three months
 ended March 31, 2011 as compared to March 31, 2010, as we continued to add sales and administrative staff to support our business.
 Stock-based compensation costs also increased to

                                                                   50




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                            Page 60 of 269
groupon.htm                                                                                                                                  6/2/11 12:35 PM


 Table of Contents




 $18.9 million for the three months ended March 31, 2011 from $0.1 million for the three months ended March 31, 2010 due to awards
 issued to retain key employees and awards issued in connection with our acquisitions. Credit card processing fees have also increased
 consistent with revenue, as this cost is generally variable based on the dollar volume of transactions that are processed. Our consulting
 and professional fees increased as a percentage of revenue in the three months ended March 31, 2011 as compared to March 31, 2010,
 primarily related to higher legal and technology-related costs. Depreciation and amortization expense increased as a percentage of
 revenue in the three months ended March 31, 2011 as compared to March 31, 2010 primarily because we recorded $53.1 million of
 intangible assets in connection with our acquisitions, resulting in $5.7 million of amortization expense for the three months ended
 March 31, 2011.

        Interest and Other Income (Expense)

      For the three months ended March 31, 2011, we generated other income of $1.1 million primarily related to foreign currency
 gains. We did not incur any foreign currency gains or losses for the three months ended March 31, 2010 as we did not have any
 international operations during the first quarter of 2010.

        Provision (Benefit) for Income Taxes

      The provision for income taxes for the three months ended March 31, 2010 was nominal due to the size of our operations. We
 recorded a benefit for income taxes for the three months ended March 31, 2011 as the Company was able to benefit losses in certain
 foreign jurisdictions.

 Comparison of the Years Ended December 31, 2008, 2009 and 2010:

                                                                                               Year Ended December 31,
                                                                                        2008            2009         2010
                                                                                                    (in thousands)
              Revenue                                                               $          94 $ 30,471 $        713,365
              Cost of revenue                                                                  89   19,542          433,411
              Gross profit                                                                      5   10,929          279,954
              Operating expenses:
               Marketing                                                                   163          4,548       263,202
               Selling, general and administrative                                       1,474          7,458       233,913
               Acquisition-related                                                          —              —        203,183
                  Total operating expenses                                               1,637         12,006        700,298
              Loss from operations                                                      (1,632)        (1,077)      (420,344)
              Interest and other income (expense), net                                      90            (16)           284
              Loss before provision for income taxes                                    (1,542)        (1,093)      (420,060)
              Provision (benefit) for income taxes                                          —             248         (6,674)
              Net loss                                                                  (1,542)        (1,341)      (413,386)
              Less: Net loss attributable to noncontrolling interests                       —              —          23,746
              Net loss attributable to Groupon, Inc.                                    (1,542)        (1,341)      (389,640)
              Dividends on preferred stock                                                (277)        (5,575)        (1,362)
              Redemption of preferred stock in excess of carrying value                     —              —         (52,893)
              Adjustment of redeemable noncontrolling interests to redemption
                 value                                                                    —         —      (12,425)
              Preferred stock distributions                                             (339)       —           —
              Net loss attributable to common stockholders                          $ (2,158) $ (6,916) $ (456,320)

                                                                    51




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                              Page 61 of 269
groupon.htm                                                                                                                              6/2/11 12:35 PM


 Table of Contents

     The following table reflects all of the line items of our statements of operations as a percentage of revenue for the years ended
 December 31, 2008, 2009 and 2010:

                                                                                           Year Ended December 31,
                                                                                          2008      2009       2010
              Revenue                                                                     100.0%    100.0%     100.0%
              Cost of revenue                                                              94.7      64.1       60.8
              Gross profit                                                                  5.3      35.9       39.2
              Operating expenses:
               Marketing                                                                     *        14.9       36.8
               Selling, general and administrative                                           *        24.5       32.8
               Acquisition-related                                                           —          —        28.5
                  Total operating expenses                                                    *       39.4       98.1
              Loss from operations                                                            *       (3.5)     (58.9)
              Interest and other income (expense), net                                     95.7       (0.1)        —
              Loss before provision for income taxes                                          *       (3.6)     (58.9)
              Provision (benefit) for income taxes                                           —         0.8       (1.0)
              Net loss                                                                        *       (4.4)     (57.9)
              Less: Net loss attributable to noncontrolling interests                        —          —         3.3
              Net loss attributable to Groupon, Inc.                                          *       (4.4)     (54.6)
              Dividends on preferred stock                                                    *      (18.3)      (0.2)
              Redemption of preferred stock in excess of carrying value                      —          —        (7.4)
              Adjustment of redeemable noncontrolling interests to redemption value          —          —        (1.7)
              Preferred stock distributions                                                   *         —          —
              Net loss attributable to common stockholders                                    *%     (22.7)%    (63.9)%


              *      Not meaningful


        Revenue

      For the years ended December 31, 2008, 2009 and 2010, our revenue was $0.1 million, $30.5 million and $713.4 million,
 respectively, reflecting growth rates of 32,316% and 2,241%, respectively, as compared to the corresponding prior year.

       2010 compared to 2009. In 2010, our revenue increased $682.9 million to $713.4 million, an increase of 2,241%. As the
 average revenue per Groupon remained relatively consistent year-to-year, the overall increase in revenue was directly attributable to
 the increase in volume of Groupons that we sold. The increase in the number of Groupons sold was driven by subscriber growth in
 our existing markets and our entry into new markets. During 2010, we added 124 new North American markets and 48.8 million new
 subscribers. In 2010, we also began our international expansion by acquiring CityDeal, which added 1.9 million subscribers as of the
 date of the acquisition in several major European markets, including London, Berlin and Paris. We ended the year with operations in
 38 countries.

      2009 compared to 2008. In 2009, our revenue increased by $30.4 million to $30.5 million, an increase of 32,316%. 2009 was
 our first full year of operations, and during the period we added 29 North American markets and 1.8 million subscribers. Significant
 markets entered in 2009 included Boston, Los Angeles and New York.

     In addition to expanding the scale of our business domestically and internationally through acquisitions and entering new
 markets, we have several other initiatives that have driven revenue growth

                                                                  52




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                          Page 62 of 269
groupon.htm                                                                                                                               6/2/11 12:35 PM


 Table of Contents




 over the last three years. We have increased our total marketing spend significantly, focusing on acquiring subscribers through online
 channels such as social networking websites and search engines. We also have added substantially to our salesforce, allowing us to
 increase the number of merchant relationships and offer more deals on a daily basis on our websites and higher quality deals to
 subscribers.

        Segment Revenue

                                                                   Year Ended December 31,
                                              2008    % of total     2009       % of total       2010       % of total
                                                                     (dollars in thousands)
                           North
                              America $          94      100.0%$ 30,471            100.0%$ 448,317               62.8%
                           International         —          —        —                —    265,048               37.2%
                             Revenue      $      94      100.0%$ 30,471            100.0%$ 713,365             100.0%

     Revenue for our International segment was $265.0 million for the year ended December 31, 2010. In May 2010, we commenced
 our operations internationally with the purchase of CityDeal, a European-based local e-commerce website similar to ours, which
 operated in 80 markets in 16 countries with 1.9 million subscribers at the time of acquisition. We subsequently completed eight
 additional international acquisitions during 2010, which gave us access to markets and additional subscribers around the world.

        Cost of Revenue

     Cost of revenue as a percentage of revenue was 94.7%, 64.1% and 60.8% for the years ended December 31, 2008, 2009 and
 2010, respectively. The significant increase in absolute cost of revenue is consistent with the growth of our revenue.

      2010 compared to 2009. In 2010, our cost of revenue increased by $413.9 million to $433.4 million, an increase of 2,118%. As
 compared to 2009, the cost of revenue was lower as a percentage of revenue as demand for our services allowed us to be more
 selective in the merchant deals we chose to offer while maintaining or improving our merchant terms.

       2009 compared to 2008. In 2009, our cost of revenue increased to $19.5 million, an increase of 21,857%. Cost of revenue as a
 percentage of revenue for the year ended December 31, 2008 was not indicative of normal operating levels due to the small number
 of transactions processed in that period as we started selling Groupons in November 2008.

        Gross Profit

     Consolidated gross profit and gross margin for each of the years presented were as follows:

                                                                                   Year Ended December 31,
                                                                                2008            2009          2010
                                                                                       (dollars in thousands)
                           Gross profit                                     $       5 $ 10,929 $ 279,954
                           Gross margin                                          5.3%   35.9%     39.2%

      Gross margin increased from 35.9% for the year ended December 31, 2009 to 39.2% for the year ended December 31, 2010. The
 increase in gross margin was due to a higher purchasing rate of offered deals and our ability to maintain or improve our merchant
 terms. We from time to time offer national deals to generate revenue and increase brand awareness which typically generate a lower
 gross margin. To date, these transactions have not had a material impact on our results of operations. Additionally, to date we have
 achieved higher overall gross margins for our International segment.

                                                                       53




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                           Page 63 of 269
groupon.htm                                                                                                                                 6/2/11 12:35 PM


 Table of Contents

        Marketing

      Marketing expense as a percentage of revenue for the years ended December 31, 2009 and 2010 was 14.9% and 36.8%. Over
 time, as our business continues to scale and we become more established in a greater percentage of our markets, we expect that our
 marketing expense will decrease as a percentage of revenue.

      2010 compared to 2009. In 2010, our marketing expense increased by $258.7 million to $263.2 million, an increase of 5,687%.
 The significant increase was attributable to an increase in online marketing spend, particularly on social networking websites and
 search engines as part of our new subscriber acquisition strategy. For the year ended December 31, 2010, marketing expense as a
 percentage of revenue for the North America and International segments was 23.4% and 59.6%, respectively. In 2010, we made
 significant marketing investments in our International segment to accelerate growth and establish our presence in new markets.

       2009 compared to 2008. In 2009, our marketing expense increased by $4.4 million to $4.5 million, an increase of 2,690%.
 Marketing expense as a percentage of revenue for the year ended December 31, 2008 is not indicative of normal operating levels due
 to the small number of transactions processed in 2008 as we started selling Groupons in November 2008.

        Selling, General and Administrative

      Selling, general and administrative expense as a percentage of revenue was 24.5% and 32.8% for the years ended December 31,
 2009 and 2010, respectively. The increases in selling, general and administrative expense as a percentage of revenue were principally
 related to the build out of our salesforce and investments in our corporate infrastructure necessary to support our current and
 anticipated growth. Over time, as our operations mature in a greater percentage of our markets, we expect that our selling, general
 and administrative expense will decrease as a percentage of revenue.

     2010 compared to 2009. In 2010, our selling, general and administrative expense increased by $226.5 million to $233.9 million,
 an increase of 3,036%. As described below, the increase in selling, general and administrative expense for the year ended
 December 31, 2010 compared to the year ended December 31, 2009 was due to increases in wages and benefits, credit card
 processing fees, consulting and professional fees and depreciation and amortization expenses.

       Wages and benefits (excluding stock-based compensation) increased by $87.6 million to $91.3 million in the year ended
 December 31, 2010 as we continued to add sales and administrative staff to support our business. Stock-based compensation costs
 also increased to $36.2 million for the year ended December 31, 2010 from $0.1 million for the year ended December 31, 2009 due to
 awards issued to retain key employees and awards issued in connection with our acquisitions. Credit card processing fees have also
 increased consistent with revenue, as this cost is generally variable based on the dollar volume of transactions that are processed. Our
 consulting and professional fees increased as a percentage of revenue in 2010 primarily related to higher legal and technology-related
 costs. Depreciation and amortization expense increased as a percentage of revenue in 2010 primarily because we recorded
 $47.3 million of intangible assets in connection with our acquisitions, resulting in $11.0 million of amortization expense.

      2009 compared to 2008. In 2009, our selling, general and administrative expense increased by $6.0 million to $7.5 million, an
 increase of 406%. Selling, general and administrative expense as a percentage of revenue for the year ended December 31, 2008 is not
 indicative of normal operating levels due to the small number of transactions processed in 2008 as we started selling Groupons in
 November 2008.

                                                                   54




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                             Page 64 of 269
groupon.htm                                                                                                                                                                          6/2/11 12:35 PM


 Table of Contents

        Acquisition-Related

      In May 2010, we acquired CityDeal, a European-based collective buying power business similar to ours. As part of the overall
 consideration paid, we were obligated to issue additional shares of our common stock in December 2010 due to the achievement of
 financial and performance earn-out targets. We recorded a liability on our consolidated balance sheet as of the original acquisition
 date for this consideration and subsequently remeasured the liability on a periodic basis until final settlement. As a result of this
 remeasurement, we recorded a total expense of $204.2 million as acquisition-related expenses, which was partially offset by other
 nominal acquisition-related items.

        Interest and Other Income (Expense)

      For the year ended December 31, 2010 we had other income of $0.5 million related to foreign currency gains. We did not incur
 any foreign currency gains or losses for the years ended December 31, 2008 and 2009 as we did not have any international operations
 until 2010. We also recorded $0.4 million of interest expense for the year ended December 31, 2010 related to interest on loans from
 related parties.

        Provision (Benefit) for Income Taxes

      The provision for income taxes for the years ended December 31, 2008 and 2009 was nominal due to the size of our operations.
 We recorded a benefit for income taxes for the year ended December 31, 2010 as the Company was able to benefit losses in certain
 foreign jurisdictions.

 Quarterly Results of Operations

      The following table represents data from our unaudited statements of operations and our key operating metrics for our most
 recent nine quarters. You should read the following table in conjunction with our consolidated financial statements and related notes
 appearing elsewhere in this prospectus. The results of operations of any quarter are not necessarily indicative of the results that may be
 expected for any future period.

                                                                                            Three Months Ended
                                     Mar. 31,        June 30,      Sept. 30,    Dec. 31,      Mar. 31,      June 30,            Sept. 30,          Dec. 31,           Mar. 31,
                                      2009             2009          2009        2009           2010          2010                2010              2010               2011
                                                                                                  (unaudited)
                                                                                            (dollars in thousands)
              Consolidated
                Statements of
                Operations
                Data:
              Revenue                $       252     $    3,301 $     9,998 $     16,920      $    44,236 $     87,298      $     185,231      $     396,600      $     644,728
              Gross profit           $        83     $    1,209 $     3,996 $      5,641      $    19,985 $     34,373      $      72,287      $     153,309      $     270,000
                Percentage of
                  revenue                    32.9%         36.6%       40.0%         33.3%           45.2%         39.4%              39.0%             38.7%              41.9%
              (Loss) income
                from
                operations           $       (316) $        17 $        848 $      (1,626) $        8,571 $     (36,819) $         (55,967) $ (336,129) $ (117,148)
                Percentage of
                  revenue                (125.4)%           0.5%         8.5%        (9.6)%          19.4%        (42.2)%            (30.2)%            (84.8)%            (18.2)%
              Net (loss)
                income
                attributable to
                Groupon, Inc.        $       (309) $        21 $        850 $      (1,903) $        8,551 $     (35,929) $         (49,032) $ (313,230) $ (102,668)
                Percentage of
                  revenue                (122.6)%           0.6%         8.5%       (11.2)%          19.3%        (41.2)%            (26.5)%            (79.0)%            (15.9)%

              Key operating
               metrics:
              Subscribers (1)                  *      152,203       627,051     1,807,278     3,434,610      10,445,521      21,369,608         50,583,805            83,100,006
              Cumulative
                customers (2)             6,840          43,014     153,471      375,099          874,017     2,379,611         4,623,267          9,031,807          15,803,995
              Featured
                merchants (3)                 74           212          765        1,644            2,903        9,565             18,722             35,099             56,781
              Groupons
                  sold (4)               27,221       116,231       340,471      764,869      1,760,398       4,062,458         8,237,733       16,235,481            28,094,743


              *              Not available

              (1)            Reflects the total number of subscribers on the last day of the applicable period.

              (2)            Reflects the total number of unique customers who have purchased Groupons from January 1, 2009 through the last day of the applicable
                             period.




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                                                                      Page 65 of 269
groupon.htm                                                                                      6/2/11 12:35 PM


              (3)    Reflects the total number of merchants featured in the applicable period.

              (4)    Reflects the total number of Groupons sold in the applicable period.


                                                                              55




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                  Page 66 of 269
groupon.htm                                                                                                                                6/2/11 12:35 PM


 Table of Contents

 Quarterly Trends

      Our gross margin and overall operating results fluctuate from quarter to quarter as a result of a variety of factors. We have
 experienced exceptional growth since our inception as well as significant changes in our business. For instance, we have entered into
 many new markets, made several international acquisitions, and increased our merchant and subscriber base over the last three years.
 These changes have resulted in substantial growth in revenue and corresponding increases in cost of revenue and operating expenses
 to support our growth. Our growth has led to uneven overall operating results due to differences in the terms and types of deals that
 we offer, changes in our investment in marketing from quarter-to-quarter, increases in employee headcount and the impact of our
 acquisitions. We have determined in the past, and expect to continue to determine in the future, to undertake substantial marketing
 expense increases when we perceive opportunities to enter new markets or penetrate existing markets more deeply. The return on
 these investments is generally achieved in future periods and, as a result, these investments can adversely impact near term results.
 For example, although we generated net income in the first quarter of 2010, we subsequently pursued a much more aggressive growth
 strategy, including rapid international expansion, acquisitions and a substantial increase in our marketing expenses. This has resulted
 in losses from operations for the three months ended June 30, 2010, September 30, 2010, December 31, 2010 and March 31, 2011.

      In addition, our business is directly affected by the behavior of our merchants and subscribers. Economic conditions and
 competitive pressures can positively and negatively impact the types of deals that we can offer and the rate at which they are
 purchased. Consequently, the results of any prior quarterly or annual periods should not be relied upon as indications of our future
 operating performance.

 Liquidity and Capital Resources

     As of March 31, 2011, we had $208.7 million in cash and cash equivalents, which primarily consisted of cash and money market
 accounts.

     Since our inception, we have funded our working capital requirements and expansion primarily through private sales of common
 and preferred stock, yielding net proceeds of $1.1 billion. We used $941.7 million of the proceeds from these sales to redeem shares
 of our common and preferred stock, and the remainder to fund acquisitions and for working capital and general corporate purposes.
 We generated positive cash flow from operations for the years ended December 31, 2009 and December 31, 2010 and the three
 months ended March 31, 2011 despite experiencing net losses in each of these periods, and we expect annual cash flow from
 operations to remain positive in the foreseeable future. We generally use this cash flow to fund our operations, make additional
 acquisitions, purchase capital expenditures and meet our other cash operating needs. Cash flow from operations was $7.5 million for
 the year ended December 31, 2009, $86.9 million for the year ended December 31, 2010 and $17.9 million for the three months
 ended March 31, 2011.

      Although we can provide no assurances, we believe that the net proceeds from this offering, together with our available cash and
 cash equivalents balance and cash generated from operations, should be sufficient to meet our working capital requirements and other
 capital expenditures for the next twelve months.

        Anticipated Uses of Cash

     Our priority in 2011 is to continue to increase our revenue and improve our gross profit through organic growth of our overall
 marketplace, coupled with continued expansion and penetration into new domestic and international markets. We also intend to
 expand our sales force and aggressively market our products, and to acquire or make strategic investments in complementary
 businesses that add to our subscriber or customer base or provide incremental technology. In order to support our overall global
 business expansion, we also expect to make significant investments in our systems, data centers, corporate

                                                                   56




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                            Page 67 of 269
groupon.htm                                                                                                                                  6/2/11 12:35 PM


 Table of Contents

 facilities and information technology infrastructure, with approximately $65 million of capital expenditures planned for the year
 ended December 31, 2011. We currently plan to fund these expenditures with cash flows generated from operations during this
 period. We also may use a portion of the net proceeds from this offering to fund these uses of cash. We do not intend to pay dividends
 in the foreseeable future.

        Cash Flow

     Our net cash flow from operating, investing and financing activities for the periods below were as follows (in thousands):

                                                                                                     Three Months Ended
                                                                  Year Ended December 31,                 March 31,
                                                               2008        2009          2010        2010         2011
                                                                                    (in thousands)
              Cash provided by (used in):
              Operating activities                         $ (1,526) $ 7,510 $ 86,885 $ 12,897 $ 17,940
              Investing activities                              (19)   (1,961) (11,879)   (663)  (44,294)
              Financing activities                            4,408     3,798   30,445       2   112,106
              Effect of changes in exchange rates on
                cash and cash equivalents                          —           —      1,069       —                4,103
              Net increase in cash and cash equivalents    $    2,863 $     9,347 $ 106,520 $ 12,236 $            89,855

        Cash Provided By (Used In) Operating Activities

     Cash provided by (used in) operating activities primarily consists of our net loss adjusted for certain non-cash items, including
 depreciation and amortization, stock-based compensation, deferred income taxes, acquisition-related expenses and the effect of
 changes in working capital and other items.

       Our current merchant arrangements are structured such that we collect cash up front when our customers purchase Groupons and
 make payments to most of our merchants at a subsequent date. Under our traditional merchant payment model, we pay our merchants
 in installments over a period of generally sixty days for all Groupons purchased. Under the redemption payment model, which is
 utilized in most of our international operations, merchants are not paid until the customer redeems the Groupon that has been
 purchased. As a result of these payment models, we experience swings in merchant payables depending on the absolute level of our
 cost of revenue during the last few weeks of each quarter. This can cause volatility in working capital levels and impact cash balances
 more or less than our operating income or loss would indicate. To the extent we offer our merchants more favorable or accelerated
 payment terms or our revenue does not continue to grow in the future, our cash flow could be adversely impacted.

      For the three months ended March 31, 2011, our net cash provided by operating activities of $17.9 million consisted of net loss
 of $113.9 million, offset by $23.9 million in adjustments for non-cash items and $107.9 million in cash provided by changes in
 working capital and other activities. Adjustments for non-cash items primarily consisted of $18.9 million in stock-based
 compensation expense, $1.9 million in depreciation expense on property and equipment and $5.7 million in amortization of intangible
 assets, partially offset by $3.4 million in deferred income taxes. The increase in cash resulting from changes in working capital
 activities primarily consisted of a $121.2 million increase in our merchant payables, due to the growth in the number of Groupons
 sold, and a $36.2 million increase in accrued expenses and other current liabilities primarily related to online marketing costs incurred
 to acquire subscribers and operational expenses such as payroll and benefits, customer refunds and costs associated with customer
 loyalty and reward programs. These increases were partially offset by a decrease in operating cash flow due to a $22.5 million
 decrease in accounts payable, due to the timing of invoices received and paid, a $16.0 million increase in accounts receivable, a
 $8.3 million increase in prepaid expenses and other current assets and a $3.9 million increase in other assets and liabilities. Increases
 in accrued expenses, accounts

                                                                      57




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                              Page 68 of 269
groupon.htm                                                                                                                                  6/2/11 12:35 PM


 Table of Contents




 receivable and other assets and liabilities primarily reflect the significant increase in the number of employees, vendors, and
 subscribers resulting from our internal growth and global expansion through recent acquisitions.

      For the three months ended March 31, 2010, our net cash provided by operating activities of $12.9 million consisted of net
 income of $8.6 million, $4.1 million in cash provided by changes in working capital and other activities and $0.2 million in
 adjustments for non-cash items. The increase in cash resulting from changes in working capital primarily consisted of an increase in
 accrued merchant payables resulting from internal business growth.

      For the year ended December 31, 2010, our net cash provided by operating activities of $86.9 million consisted of a net loss of
 $413.4 million, offset by $245.1 million in adjustments for non-cash items and $255.2 million in cash provided by changes in
 working capital and other activities. Adjustments for non-cash items primarily consisted of $203.2 million in acquisition-related
 expenses, $36.2 million in stock-based compensation expense, $1.9 million in depreciation expense on property and equipment and
 $11.0 million in amortization of intangible assets, partially offset by $7.3 million in deferred income taxes. The increase in cash
 resulting from changes in working capital activities primarily consisted of a $149.0 million increase in our merchant payables, due to
 the growth in the number of Groupons sold, a $94.6 million increase in accrued expenses and other current liabilities primarily related
 to online marketing costs incurred to acquire subscribers and operational expenses such as payroll and benefits, customer refunds and
 costs associated with customer loyalty and reward programs, and a $50.8 million increase in accounts payable. These increases were
 partially offset by a decrease in operating cash flow due to a $34.9 million increase in accounts receivable, a $2.5 million increase in
 prepaid expenses and other current assets and a $1.5 million increase in other assets and liabilities. Increases in accrued expenses,
 accounts payable, accounts receivable and other assets and liabilities primarily reflect the significant increase in the number of
 employees, vendors, and subscribers resulting from our internal growth and global expansion through recent acquisitions.

      For the year ended December 31, 2009, our net cash provided by operating activities of $7.5 million was comprised of a net loss
 of $1.3 million, offset by $8.8 million in cash provided by working capital and other items. The increase in cash resulting from
 changes in working capital primarily consisted of an increase in accrued merchant payable and accrued expenses resulting from
 internal business growth.

     For the year ended December 31, 2008, our net cash used in operating activities of $1.5 million primarily reflected our net loss of
 $1.5 million.

        Cash Used In Investing Activities

      Cash used in investing activities primarily consists of capital expenditures, acquisitions of businesses and changes in the balances
 of restricted stock.

      For the three months ended March 31, 2011, our net cash used in investing activities of $44.3 million primarily consisted of
 $30.3 million invested in subsidiaries and equity interests, $11.0 million in purchases of capital expenditures and $2.8 million in net
 cash paid in business acquisitions.

     For the three months ended March 31, 2010, our net cash used in investing activities of $0.7 million primarily consisted of the
 purchases of capital expenditures.

      For the year ended December 31, 2010, our net cash used in investing activities of $11.9 million was primarily comprised of
 $14.7 million in capital expenditures, partially offset by $3.8 million in net cash received from acquisitions. The capital expenditures
 reflect the significant growth of the business domestically and internationally. We received net cash from our acquisitions in 2010, as
 a significant portion of the purchase price paid consisted of stock and contingent consideration.

                                                                    58




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                              Page 69 of 269
groupon.htm                                                                                                                                                               6/2/11 12:35 PM


 Table of Contents

      For the year ended December 31, 2009, our net cash used in investing activities of $2.0 million primarily reflected a $1.4 million
 change in restricted cash related to cash paid for a security agreement with our merchant processor and a letter of credit for a facility
 lease agreement.

        Cash Provided By Financing Activities

     Cash provided by financing activities primarily consists of net proceeds from the issuance of common and preferred stock and the
 exercise of stock options by employees, net of the repurchase of founders' stock, common stock and preferred stock held by certain
 stockholders.

     For the three months ended March 31, 2011, our net cash provided by financing activities of $112.1 million was driven primarily
 by net cash proceeds from the issuance of common and preferred stock of $509.7 million. We used $348.6 million of the proceeds to
 repurchase our common stock, $35.0 million to redeem shares of our preferred stock and $13.6 million to pay our related party loans
 incurred in connection with the CityDeal acquisition.

      For the year ended December 31, 2010, our net cash provided by financing activities of $30.4 million was driven primarily by
 net cash proceeds from the issuance of preferred stock of $584.7 million. We used $503.2 million of the proceeds to repurchase our
 common stock, $55.0 million to redeem shares of our preferred stock, and $1.3 million to pay dividends to our preferred stockholders.
 In addition, we received $5.0 million from related party loans throughout 2010.

      For the year ended December 31, 2009, our net cash provided by financing activities of $3.8 million was due primarily to
 $29.9 million of net cash proceeds from the sale and issuance of preferred stock, of which $26.4 million was used to fund a special
 dividend to certain holders of our capital stock.

     For the year ended December 31, 2008, our net cash provided by financing activities of $4.4 million reflected $4.7 million in net
 proceeds from the sale and issuance of preferred stock.

 Contractual Obligations and Commitments

     The following table summarizes our future contractual obligations and commitments as of March 31, 2011:

                                                                                                Payment due by period
                                                                                        Less than        1-3          3-5             More than
                                                                          Total          1 year         years        years             5 years
                                                                                                   (in thousands)
              Operating lease obligations(1)                           $ 40,375 $ 12,667 $ 17,068 $ 7,010 $                                 3,630
              Purchase obligations(2)                                       907      680      227      —                                       —
              Total                                                    $ 41,282 $ 13,347 $ 17,295 $ 7,010 $                                 3,630


              (1)     The operating lease obligations are for office facilities and are non-cancelable. Certain leases contain periodic rent escalation adjustments and
                      renewal and expansion options. Operating lease obligations expire at various dates with the latest maturity in 2017.

              (2)     Purchase obligations primarily represent non-cancelable contractual obligations related to internet marketing services.


                                                                               59




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                                                           Page 70 of 269
groupon.htm                                                                                                                                    6/2/11 12:35 PM


 Table of Contents

 Off-Balance Sheet Arrangements

     We did not have any off-balance sheet arrangements as of March 31, 2011.

 Quantitative and Qualitative Disclosures about Market Risk

     We have operations both within the United States and internationally, and we are exposed to market risks in the ordinary course
 of our business, including the effect of foreign currency fluctuations, interest rate changes and inflation. Information relating to
 quantitative and qualitative disclosures about these market risks is set forth below.

        Foreign Currency Exchange Risk

      We transact business in various foreign currencies other than the U.S. dollar, principally the euro, British pound sterling and
 Japanese yen, which exposes us to foreign currency risk. For the first quarter of 2011, we derived approximately 53.8% of our
 revenue from international customers and we expect the percentage of total revenue derived from outside the United States to increase
 in future periods as we continue to expand globally. Revenue and related expenses generated from our international operations are
 denominated in the functional currencies of the corresponding country. The functional currency of our subsidiaries that either operate
 or support these markets is generally the same as the corresponding local currency. The results of operations of, and certain of our
 intercompany balances associated with, our international operations are exposed to foreign exchange rate fluctuations. Upon
 consolidation, as exchange rates vary, our revenue and other operating results may differ materially from expectations, and we may
 record significant gains or losses on the remeasurement of intercompany balances.

     We assess our market risk based on changes in foreign currency exchange rates utilizing a sensitivity analysis that measures the
 potential impact in earnings, fair values and cash flows based on a hypothetical 10% change (increase and decrease) in currency rates.
 We use a current market pricing model to assess the changes in the value of the U.S. dollar on foreign currency denominated
 monetary assets and liabilities. The primary assumption used in these models is a hypothetical 10% weakening or strengthening of the
 U.S. dollar against all our currency exposures as of March 31, 2011.

      We used March 31, 2011 market rates on outstanding foreign currency denominated monetary assets and liabilities to perform the
 sensitivity analyses separately for each of our currency exposures. The estimates are based on the market risk sensitive portfolios
 described in the preceding paragraphs and assume instantaneous, parallel shifts in exchange rates. As of March 31, 2011, our working
 capital (defined as current assets less current liabilities) subject to foreign currency translation risk was $192.3 million. The potential
 decrease in net current assets from a hypothetical 10% adverse change in quoted foreign currency exchange rates would be
 $19.2 million.

        Interest Rate Risk

      Our cash and cash equivalents primarily consisted of highly-rated commercial paper and money market funds. We currently have
 no investments of any type and do not have any long-term borrowings. Our exposure to market risk for changes in interest rates is
 limited because nearly all of our cash and cash equivalents have a short-term maturity and are used primarily for working capital
 purposes.

        Impact of Inflation

       We believe that our results of operations are not materially impacted by moderate changes in the inflation rate. Inflation and
 changing prices did not have a material effect on our business, financial condition or results of operations in 2008, 2009, 2010 or the
 first quarter of 2011.

                                                                     60




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                                Page 71 of 269
groupon.htm                                                                                                                                   6/2/11 12:35 PM


 Table of Contents

 Critical Accounting Policies and Estimates

      The preparation of financial statements in conformity with generally accepted accounting principles of the United States, or
 U.S. GAAP, requires estimates and assumptions that affect the reported amounts and classifications of assets and liabilities, revenues
 and expenses, and the related disclosures of contingent liabilities in the consolidated financial statements and accompanying notes.
 The SEC has defined a company's critical accounting policies as the ones that are most important to the portrayal of the company's
 financial condition and results of operations, and which require the company to make its most difficult and subjective judgments,
 often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition, we have identified the
 following critical accounting policies and estimates addressed below. We also have other key accounting policies, which involve the
 use of estimates, judgments, and assumptions that are significant to understanding our results. See Note 2 "Summary of Significant
 Accounting Policies" of Notes to Consolidated Financial Statements for further information. Although we believe that our estimates,
 assumptions, and judgments are reasonable, they are based upon information available at the time. Actual results may differ
 significantly from these estimates under different assumptions, judgments, or conditions.

        Revenue Recognition

      We recognize revenue from the sale of Groupons when the following criteria are met: persuasive evidence of an arrangement
 exists; delivery has occurred; the selling price is fixed or determinable; and collectability is reasonably assured. These criteria
 generally are met when the number of customers who purchase the daily deal exceeds any predetermined minimum or threshold,
 based on the executed contract with our merchants. We record the gross purchase price we receive, excluding taxes where applicable,
 as we are the primary obligor in the transaction, and record an allowance for estimated customer refunds on total revenue primarily
 based on historical experience.

      We use various customer loyalty and reward programs to build brand loyalty and provide subscribers with incentives to buy
 Groupons. When subscribers perform qualifying acts, such as providing a referral to a new subscriber or participating in promotional
 offers, we grant the customer credits that can be redeemed for awards such as free or discounted goods or services in the future. We
 accrue the costs related to the associated obligation to redeem the award credits granted at issuance in accrued expenses on the
 consolidated balance sheets and record the corresponding offset to revenue on the consolidated statements of operations.

      If our judgments regarding estimated customer refunds and accrued costs associated with customer loyalty and reward programs
 are inaccurate, actual net revenue could differ from the amount we recognize, directly impacting our results of operations.

        Acquisitions and the Recoverability of Goodwill and Long-Lived Intangible Assets

      A component of our growth strategy has been to acquire and integrate businesses that complement our existing operations. We
 account for business combinations using the purchase method of accounting and allocate the purchase price of acquired companies to
 the tangible and intangible assets acquired and liabilities assumed based upon their estimated fair value at the purchase date. The
 difference between the purchase price and the fair value of the net assets acquired is recorded as goodwill.

      In determining the fair value of assets acquired and liabilities assumed in a business combination, we primarily use recognized
 valuation methods such as an income approach or a cost approach and apply present value modeling. Our significant estimates in the
 income or cost approach include identifying business factors such as size, growth, profitability, risk and return on investment and
 assessing comparable revenue and operating income multiples in estimating the fair value. Further, we make certain assumptions
 within present value modeling valuation techniques including risk-adjusted discount rates, future price levels, rates of increase in
 operating expenses, weighted average cost of capital, rates of long-term growth,

                                                                    61




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                               Page 72 of 269
groupon.htm                                                                                                                                  6/2/11 12:35 PM


 Table of Contents




 and effective income tax rates. Valuations are performed by management or independent valuation specialists under management's
 supervision, where appropriate. We believe that the estimated fair value assigned to the assets acquired and liabilities assumed are
 based on reasonable assumptions that marketplace participants would use. However, such assumptions are inherently uncertain and
 actual results could differ from those estimates.

      Future changes in our assumptions or the interrelationship of those assumptions may negatively impact future valuations. In
 future measurements of fair value, adverse changes in discounted cash flow assumptions could result in an impairment of goodwill or
 intangible assets that would require a non-cash charge to the consolidated statements of operations and may have a material effect on
 our financial condition and operating results.

        Stock-Based Compensation

      We measure stock-based compensation cost at fair value, net of estimated forfeitures, and generally recognize the corresponding
 compensation expense on a straight-line basis over the service period during which awards are expected to vest. We include stock-
 based compensation expense in selling, general and administrative expenses in our consolidated statements of operations. The fair
 value of restricted stock and restricted stock units is based on the valuation of our common stock on the date of grant. Determining the
 fair value of stock-based awards at the grant date requires judgment.

       We use the Black-Scholes-Merton option-pricing model to determine the fair value of stock options. The determination of the
 grant date fair value of options using an option-pricing model is affected by our estimated common stock fair value as well as
 assumptions regarding a number of other complex and subjective variables. These variables include the fair value of our common
 stock, our expected stock price volatility over the expected term of the options, stock option exercise and cancellation behaviors, risk-
 free interest rates, and expected dividends, which are estimated as follows:

        •       Fair Value of Our Common Stock. Because our stock has not been publicly traded, we must estimate the fair value of
                common stock, as discussed in "Common Stock Valuations" below.

        •       Expected Term. The expected term represents the period of time the stock options are expected to be outstanding and
                is based on the "simplified method" allowed under SEC guidance. We used the "simplified method" due to the lack of
                sufficient historical exercise data to provide a reasonable basis upon which to otherwise estimate the expected life of
                the stock options.

        •       Volatility. Since we do not have a trading history for our common stock, the expected stock price volatility was
                estimated by taking the average historic price volatility for publicly-traded options of comparable industry peers
                similar in size, stage of life cycle and financial leverage, based on daily price observations over a period equivalent to
                the expected term of the stock option grants. We did not rely on implied volatilities of traded options in our industry
                peers' common stock because the volume of activity was relatively low. We intend to continue to consistently apply
                this process using the same or similar public companies until a sufficient amount of historical information regarding
                the volatility of our own common stock share price becomes available, or unless circumstances change such that the
                identified companies are no longer similar to us, in which case, more suitable companies whose share prices are
                publicly available would be utilized in the calculation.

        •       Risk-free Interest Rate. The risk-free interest rate is based on the yields of U.S. Treasury securities with maturities
                similar to the expected term of the options for each option group.

        •       Dividend Yield. We do not presently plan to pay cash dividends in the foreseeable future. Consequently, we used an
                expected dividend yield of zero.

     If any of the assumptions used in the Black-Scholes-Merton model changes significantly, stock-based compensation for future
 awards may differ materially compared with the awards granted previously.

                                                                    62




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                              Page 73 of 269
groupon.htm                                                                                                                               6/2/11 12:35 PM


 Table of Contents

     The following table presents the weighted-average assumptions used to estimate the fair value of options granted during the years
 ended December 31, 2008, 2009 and 2010:

                                                                                   2008      2009      2010
                           Dividend yield                                            —         —         —
                           Risk-free interest rate                                 3.10%     2.82%     2.58%
                           Expected term (in years)                                5.98      6.84      6.13
                           Expected volatility                                       46%       46%       46%

        Common Stock Valuations

      The fair value of the common stock underlying our stock options was determined by our board of directors, or the Board, which
 intended that all options granted were exercisable at a price per share not less than the per share fair value of our common stock
 underlying those options on the date of grant. The assumptions we use in the valuation model are based on future expectations
 combined with management judgment. In the absence of a public trading market, the Board with input from management exercised
 significant judgment and considered numerous objective and subjective factors to determine the fair value of our common stock as of
 the date of each option grant, including the following factors:

        •       the prices, rights, preferences and privileges of our preferred stock relative to the common stock;

        •       the prices of our preferred stock sold to outside investors in arms-length transactions;

        •       our operating and financial performance;

        •       current business conditions and projections;

        •       the hiring of key personnel;

        •       the history of the Company and the introduction of new products and services;

        •       our stage of development;

        •       the likelihood of achieving a liquidity event for the shares of common stock underlying these stock options, such as an
                initial public offering or sale of the Company, given prevailing market conditions;

        •       any adjustment necessary to recognize a lack of marketability for our common stock;

        •       the market performance of comparable publicly-traded companies; and

        •       the U.S. and global capital market conditions.

                                                                    63




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                           Page 74 of 269
groupon.htm                                                                                                                             6/2/11 12:35 PM


 Table of Contents

     We granted stock options with the following exercise price ranges each quarter since the beginning of 2008:

                                                                      Shares Underlying   Weighted Average
                           Three Months Ended                              Options         Exercise Price
                           March 31, 2008                                           —                  —
                           June 30, 2008                                        30,000               0.03
                           September 30, 2008                                  480,000               0.03
                           December 31, 2008                                   600,000               0.03
                           March 31, 2009                                      300,000               0.05
                           June 30, 2009                                     2,814,000               0.09
                           September 30, 2009                                3,258,000               0.16
                           December 31, 2009                                   873,000               0.51
                           March 31, 2010                                    5,625,000               2.42
                           June 30, 2010                                     1,121,400               3.35
                           September 30, 2010                                1,868,200               4.49
                           December 31, 2010                                   150,600               6.95
                           March 31, 2011                                       60,000              15.80

      Summarized below are the significant factors the Board considered in determining the fair value of the common stock underlying
 our stock-based awards.

        Fiscal Year 2008 and Prior

      We raised $4.7 million in net proceeds from the issuance convertible preferred stock in January 2008 and began operations with
 the launch of our first market in Chicago in November 2008.

        Fiscal Year 2009

               First Quarter 2009. In the first quarter, we generated revenue of $0.3 million for the first quarter of 2009 through
               continued to growth in the Chicago market.

               Second Quarter 2009.      In the second quarter, we launched our services in four additional markets (New York,
               Washington D.C., San Francisco and Boston) and the total number of subscribers rose to approximately 0.2 million at
               June 30, 2009. We generated revenue of $3.3 million for the second quarter of 2009.

               Third Quarter 2009. In the third quarter, we launched our services in 12 new markets across the United States and
               the total number of subscribers increased to approximately 0.6 million at September 30, 2009. We generated revenue
               of $10.0 million for the third quarter of 2009.

               Fourth Quarter 2009. In the fourth quarter, we raised $29.9 million in net proceeds from the issuance of convertible
               preferred stock in November 2009 and the total number of subscribers increased to approximately 1.8 million at
               December 31, 2009 as we launched our services in 13 additional markets across the United States. We generated
               revenue of $16.9 million for the fourth quarter of 2009.

        Fiscal Year 2010

               First Quarter 2010. In the first quarter, the total number of subscribers increased to approximately 3.4 million as of
               March 31, 2010 as we launched our services in 13 new markets across the United States. In addition, we launched our
               official Groupon application for the Apple iPhone and iPod touch, which provides a more convenient buying and
               redemption process for both consumers and merchants. We generated revenue of $44.2 million for the first quarter of
               2010.

                                                                 64




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                         Page 75 of 269
groupon.htm                                                                                                                                    6/2/11 12:35 PM


 Table of Contents

                Second Quarter 2010. In the second quarter, we raised $134.9 million in net proceeds from the issuance of
                convertible preferred stock in April 2010. We also expanded our global presence to 80 markets and 16 countries in
                Europe and in Latin America with acquisitions. In addition, we acquired a mobile development company in May 2010.
                We also launched our services in 20 additional markets across North America, including Toronto and Vancouver,
                increasing the total number of subscribers to approximately 10.4 million as of June 30, 2010. We generated revenue of
                $87.3 million for the second quarter of 2010.

                Third Quarter 2010. In the third quarter, the total number of subscribers increased to approximately 21.4 million as
                of September 30, 2010 as we launched our services in 22 new markets across North America, including Calgary,
                Edmonton and Ottawa. We also expanded our global presence into the Russian Federation and Japan in August 2010.
                In addition, we began targeting deals to subscribers based upon their personal preferences and buying history. We
                generated revenue of $185.2 million for the third quarter of 2010.

                Fourth Quarter 2010. In the fourth quarter, we raised $449.7 million in net proceeds from the issuance of preferred
                stock in December 2010. In addition, we expanded our presence in the Asia-Pacific region, and we also acquired
                Ludic Labs, Inc., a company that designs and develops local marketing services, in November 2010. The total number
                of subscribers increased to approximately 50.6 million as of December 31, 2010 as we launched our services in 69
                additional markets across North America, including 12 markets in Canada. We generated revenue of $396.6 million
                for the fourth quarter of 2010.

        Fiscal Year 2011

                First Quarter 2011. In the first quarter of 2011 we raised $492.5 million in net proceeds from the issuance of
                preferred stock. We expanded our presence into new and expanding markets in India, Malaysia, South Africa and the
                Middle East through a series of acquisitions. The total number of subscribers increased to approximately 83.1 million
                as of March 31, 2011 as we launched our services in 20 additional markets across North America. We generated
                revenue of $644.7 million for the first quarter of 2011.

        Income Taxes

      We are subject to income taxes in both the U.S. and numerous foreign jurisdictions. Significant judgment is required in
 evaluating our tax positions and determining our provision for income taxes. During the ordinary course of business, there are many
 transactions and calculations for which the ultimate tax determination is uncertain. For example, our effective tax rates could be
 adversely affected by earnings being lower than anticipated in countries where we have lower statutory rates and higher than
 anticipated in countries where we have higher statutory rates, by changes in foreign currency exchange rates, by changes in the
 valuation of our deferred tax assets and liabilities, or by changes in the relevant tax, accounting and other laws, regulations, principles
 and interpretations.

      We are subject to audit in various jurisdictions, and such jurisdictions may assess additional income tax against us. Although we
 believe our tax estimates are reasonable, the final determination of any tax audits and any related litigation could be materially
 different from historical income tax provisions and accruals. The results of an audit or litigation could have a material effect on our
 operating results or cash flows in the period or periods for which that determination is made.

       We account for income taxes using the liability method, under which deferred income tax assets and liabilities are recognized
 based upon anticipated future tax consequences attributable to differences between financial statement carrying values of assets and
 liabilities and their respective tax bases. We regularly review deferred tax assets to assess their potential realization and establish a
 valuation allowance for portions of such assets to reduce the carrying value if we do not consider it to be more likely than not

                                                                     65




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                                Page 76 of 269
groupon.htm                                                                                                                                 6/2/11 12:35 PM


 Table of Contents



 that the deferred tax assets will be realized. Any change in the valuation allowance would be charged to income in the period such
 determination was made.

     In performing this review, we make estimates and assumptions regarding projected future taxable income, the expected timing of
 reversals of existing temporary differences and the implementation of tax planning strategies. A change in these assumptions could
 cause an increase or decrease to the valuation allowance resulting in an increase or decrease in the Company's effective tax rate, which
 could materially impact our results of operations.

 Recent Accounting Pronouncements

       In September 2006, the Financial Accounting Standards Board, or the FASB, issued accounting guidance, which, among other
 requirements, defines fair value, establishes a framework for measuring fair value, and expands disclosures about the use of fair value
 measurements. Such guidance prescribes a single definition of fair value as the price that would be received to sell an asset or paid to
 transfer a liability in an orderly transaction between market participants at the measurement date. For financial instruments and
 certain nonfinancial assets and liabilities that are recognized or disclosed at fair value on a recurring basis at least annually, the
 guidance was effective beginning the first fiscal year that begins after November 15, 2007. This portion of the guidance, which was
 adopted as of the beginning of 2008, had no impact on our consolidated financial statements. For all other nonfinancial assets and
 liabilities the guidance was effective for fiscal years beginning after November 15, 2008. We adopted this guidance effective as of the
 beginning of 2009, and its application had no impact on our consolidated financial statements. In January 2010, the FASB issued
 additional guidance that improves disclosures about fair value measures that were originally required. The new guidance is effective
 for interim and annual periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances and
 settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years
 beginning after December 15, 2010, and for interim periods within those years. The adoption of this guidance did not impact our
 financial position or results of operations.

       In December 2007, the FASB issued guidance that establishes principles and requirements for determining how a company
 recognizes and measures the fair value of identifiable assets acquired, liabilities assumed, noncontrolling interests and certain
 contingent considerations acquired in a business combination. The guidance on business combinations also requires acquisition-
 related transaction expenses and restructuring costs be expensed as incurred rather than capitalized. This guidance became effective
 for fiscal years beginning after December 15, 2008 and we adopted the provisions of this guidance prospectively beginning in 2009.
 In December 2010, the FASB issued an update to this guidance, which specifies that if a public entity presents comparative financial
 statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that
 occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period. The amendments
 also expand the supplemental pro forma disclosures that are required. The new guidance is effective prospectively for business
 combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after
 December 15, 2010. We adopted the provisions of this business combinations guidance at the beginning of 2011.

      In April 2008, the FASB issued a staff position that amends the list of factors an entity should consider in developing renewal or
 extension assumptions used in determining the useful life of recognized intangible assets. This new guidance applies to intangible
 assets that are acquired individually or with a group of other assets in business combinations and asset acquisitions. Under this
 guidance, entities estimating the useful life of a recognized intangible asset must consider their historical experience in renewing or
 extending similar arrangements or, in the absence of historical experience, must consider assumptions that market participants would
 use about renewal or extension. This staff position became effective for fiscal years beginning after December 15, 2008. We adopted
 the provisions of this guidance

                                                                   66




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                             Page 77 of 269
groupon.htm                                                                                                                                    6/2/11 12:35 PM


 Table of Contents




 prospectively beginning in 2009, and its application had no impact on our consolidated financial statements.

      In June 2009, the FASB issued guidance that establishes the FASB Accounting Standards Codification as the sole source of
 authoritative U.S. GAAP. Pursuant to these provisions, we have incorporated the applicable references in its consolidated financial
 statements. The adoption of this guidance did not impact our financial position or results of operations.

      In June 2009, the FASB issued guidance that eliminates the qualifying special purpose entity concept, changes the requirements
 for derecognizing financial assets and requires enhanced disclosures about transfers of financial assets. The guidance also revises
 earlier guidance for determining whether an entity is a variable interest entity, requires a new approach for determining who should
 consolidate a variable interest entity, changes when it is necessary to reassess who should consolidate a variable interest entity, and
 requires enhanced disclosures related to an enterprise's involvement in variable interest entities. The guidance is effective for the first
 annual reporting period that begins after November 15, 2009. We adopted the provisions of this guidance prospectively beginning in
 2010, and its application had no impact on our consolidated financial statements.

      In September 2009, the FASB issued guidance that allows companies to allocate arrangement consideration in a multiple element
 arrangement in a way that better reflects the transaction economics. It provides another alternative for establishing fair value for a
 deliverable when vendor specific objective evidence or third party evidence for deliverables in an arrangement cannot be determined.
 When this evidence cannot be determined, companies will be required to develop a best estimate of the selling price to separate
 deliverables and allocate arrangement consideration using the relative selling price method. The guidance also expands the disclosure
 requirements to require that an entity provide both qualitative and quantitative information about the significant judgments made in
 applying this guidance. This guidance was effective on a prospective basis for revenue arrangements entered into or materially
 modified on or after January 1, 2011. The adoption of this guidance did not have a material impact on our consolidated financial
 statements.

       In February 2010, the FASB issued guidance, effective immediately that removes the requirement to disclose the date through
 which subsequent events were evaluated in both originally issued and reissued financial statements for SEC filers. The adoption of
 this guidance did not have a material impact on our consolidated financial statements.

      In December 2010, the FASB issued guidance about when to perform Step 2 of the goodwill impairment test for reporting units
 with zero or negative carrying amounts. According to the new guidance, entities must consider whether it is more likely than not that
 goodwill impairment exists by assessing if there are any adverse qualitative factors indicating impairment. The qualitative factors are
 consistent with the existing guidance. The new guidance is effective for fiscal years, and interim periods within those years, beginning
 after December 15, 2010. The adoption of this new guidance did not have a material impact on the consolidated financial statements.

                                                                     67




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                                Page 78 of 269
groupon.htm                                                                                                                               6/2/11 12:35 PM


 Table of Contents


                                                             BUSINESS

      Groupon is a local e-commerce marketplace that connects merchants to consumers by offering goods and services at a discount.
 Traditionally, local merchants have tried to reach consumers and generate sales through a variety of methods, including the yellow
 pages, direct mail, newspaper, radio, television and online advertisements, promotions and the occasional guy dancing on a street
 corner in a gorilla suit. By bringing the brick and mortar world of local commerce onto the internet, Groupon is creating a new way
 for local merchants to attract customers and sell goods and services. We provide consumers with savings and help them discover
 what to do, eat, see and buy in the places where they live and work.

      We started Groupon in November 2008 and believe the growth of our business demonstrates the power of our solution and the
 size of our market opportunity:

        •       We increased our revenue from $3.3 million in the second quarter of 2009 to $644.7 million in the first quarter of
                2011.

        •       We expanded from five North American markets as of June 30, 2009 to 175 North American markets and 43 countries
                as of March 31, 2011.

        •       We increased our subscriber base from 152,203 as of June 30, 2009 to 83.1 million as of March 31, 2011.

        •       We increased the number of merchants featured in our marketplace from 212 in the second quarter of 2009 to 56,781
                in the first quarter of 2011.

        •       We sold 116,231 Groupons in the second quarter of 2009 compared to 28.1 million Groupons in the first quarter of
                2011.

        •       We grew from 37 employees as of June 30, 2009 to 7,107 employees as of March 31, 2011.

       Each day we email our subscribers discounted offers for goods and services that are targeted by location and personal
 preferences. Consumers also access our deals directly through our websites and mobile applications. A typical deal might offer a $20
 Groupon that can be redeemed for $40 in value at a restaurant, spa, yoga studio, car wash or other local merchant. Customers
 purchase Groupons from us and redeem them with our merchants. Our revenue is the purchase price paid by the customer for the
 Groupon. Our gross profit is the amount of revenue we retain after paying an agreed upon percentage of the purchase price to the
 featured merchant.

      Groupon primarily addresses the worldwide local commerce markets in the leisure, recreation, foodservice and retail sectors.
 According to Euromonitor, the leisure, recreation and foodservice market is expected to be $1.4 trillion in the U.S. and $5.3 trillion
 internationally in 2011. The retail market is expected to be $2.9 trillion in the U.S. and $12.2 trillion internationally in 2011. We
 believe a substantial portion of these expenditures on leisure, recreation, foodservice and retail will be spent with local merchants.
 Groupon also addresses the online advertising market serving these merchants. The size of the U.S. online advertising market is
 estimated to be $51.9 billion in 2011, of which $16.1 billion is estimated to be spent by local merchants according to Borrell
 Associates. The size of the global online advertising market is estimated to be approximately $79 billion in 2011, according to IDC.

                                                                  68




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                           Page 79 of 269
groupon.htm                                                                                                                                6/2/11 12:35 PM


 Table of Contents

 Our Business

     The following examples illustrate how our marketplace works and the benefits it can provide our merchants and consumers.

        •       Two-Hour Romantic Dinner Cruise With Star Fleet Entertainment Yachts, Houston, Texas

                Merchant Objective: Star Fleet Entertainment Yachts, a yacht charter business on the Texas Gulf Coast, hosts
                murder mystery themed and romantic dinner cruises for up to 150 passengers. Star Fleet regularly sold out its murder
                mystery themed cruises, but had trouble filling its romantic dinner cruises. The President and Chief Executive Officer
                of Star Fleet sought to use our service as a marketing tool to introduce Star Fleet to new consumers and increase sales.

                The Deal: On January 19, 2010, we emailed and posted the following Groupon daily deal in Houston, Texas that
                offered one ticket on a two-hour romantic dinner cruise on the Star Fleet Entertainment Yacht for $32, a 50% discount.




                The Results: We sold 2,181 Groupons in 24 hours. By targeting an under-performing segment of its business, Star
                Fleet was able to increase ticket sales for romantic dinner cruises. In addition, more than half of the Groupons were
                sold to new customers. Star Fleet's website traffic peaked on the day the deal was offered at approximately 6,700
                unique visits, 82% of which were from new visitors. Star Fleet sold out all romantic dinner cruises from January 19,
                2010 through September 30, 2010 and substantially increased its gross sales for romantic dinner cruises compared to
                the same period in the prior year.

                                                                  69




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                            Page 80 of 269
groupon.htm                                                                                                                           6/2/11 12:35 PM


 Table of Contents

        •      Latin Cuisine and Drinks at Seviche, Louisville, Kentucky

               Merchant Objective: Seviche is an award-winning restaurant located in Louisville, Kentucky. Despite Seviche's
               award-winning status, it struggled during the winter months to maintain sales even after trying several forms of
               traditional local marketing.

               The Deal: On February 8, 2010, we emailed and posted the following Groupon daily deal in Louisville, Kentucky
               that offered $60 worth of Latin cuisine and drinks for $25, a 58% discount.




               The Results: We sold 793 Groupons in 24 hours. Seviche's customer headcount increased by 170% in the week
               following the daily deal. The Groupon customers spent an average 68% above the $60 face value of the Groupon,
               generating approximately $80,000 in gross sales.

       We have offered deals involving over 140 different types of businesses, services and activities that fall into the six broad
 categories identified below. The following chart shows the percentage of deals we offered worldwide across these categories during
 the first quarter of 2011:




                                                                70




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                       Page 81 of 269
groupon.htm                                                                                                                              6/2/11 12:35 PM


 Table of Contents

 Our Advantage

     We have created an e-commerce marketplace for connecting local merchants to consumers. Although there are many companies
 which have tried to replicate our approach, we believe that the customer experience and relevancy of our deals, our merchant scale
 and quality and our brand are sustainable competitive advantages.

      Customer Experience and Relevance of Deals. We are committed to providing a great customer experience and maintaining the
 trust of our customers. Consistent with this commitment, our "Groupon Promise" is core to our customer service philosophy:

                "Nothing is more important to us than treating our customers well. If you ever feel like Groupon let you down, give us
                a call and we'll return your purchase—simple as that."

      In addition, we use our technology and scale to target relevant deals based on individual subscriber preferences. As we increase
 the volume of transactions through our marketplace, we increase the amount of data that we have about deal performance and
 customer interests. This data allows us to continue to improve our ability to help merchants design the most effective deals and
 deliver deals to customers that better match their interests. We use information about our subscribers to select and send deals via
 email and our mobile applications can also target deals to subscribers based on proximity to the sponsoring merchant. Increased
 relevancy enables us to offer several daily deals, which we believe results in increasing purchases by targeted subscribers, thereby
 driving greater demand for Groupons. We monitor the relevancy of deals by measuring purchasing rates among targeted subscribers.

      Merchant Scale and Quality. In the first quarter of 2011, we featured deals from over 56,000 merchants worldwide across over
 140 categories of goods and services. Our salesforce of over 3,500 sales representatives enables us to work with local merchants in
 175 North American markets and 43 countries. We draw on the experience we have gained to evaluate prospective merchants based
 on quality, location and relevance to our subscribers. We maintain a large base of prospective merchants interested in our
 marketplace, which enables us to be more selective and offer our subscribers higher quality deals. Increasing our merchant base also
 increases the number and variety of deals that we offer to consumers, which we believe drives higher subscriber and user traffic, and
 in turn promotes greater merchant interest in offering deals through our marketplace, creating a network effect.

      Brand. We believe we have built a trusted and recognizable brand by delivering a compelling value proposition to merchants
 and consumers. A benefit of our brand is that a substantial portion of our subscribers in our established markets is acquired through
 word-of-mouth. We believe our brand is trusted due to our dedication to our customers and our significant investment in customer
 satisfaction.

 Our Strategy

      Our objective is to become an essential part of everyday local commerce for consumers and merchants. Key elements of our
 strategy include the following:

      Grow our subscriber base. As of March 31, 2011, we had 83.1 million subscribers. We have made significant investments to
 acquire subscribers through online marketing initiatives, such as search engine marketing, display advertisements, referral programs
 and affiliate marketing. In 2010 and during the first quarter of 2011, we spent $241.5 million and $179.9 million, respectively, on
 these initiatives. In addition, our subscriber base has increased by word-of-mouth. We intend to continue to invest in acquiring
 subscribers so long as we believe the economics of our business support such investments. See "—Subscriber Economics." Our goal
 is to retain existing and acquire new subscribers by providing more targeted and real-time deals, delivering high quality customer
 service and expanding the number and categories of deals we offer. We intend to continue to invest in the development of increased
 relevance of

                                                                  71




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                          Page 82 of 269
groupon.htm                                                                                                                             6/2/11 12:35 PM


 Table of Contents




 our service as the number and variety of our deals we offer our subscribers increase and we gain more information about our
 subscribers' interests.

      Grow the number of merchants we feature. During 2010 and the first quarter of 2011, we featured Groupon daily deals for over
 66,000 merchants and over 56,000 merchants worldwide, respectively. To drive merchant growth, we have expanded the number of
 ways in which consumers can discover deals through our marketplace. We adjust the number and variety of products we offer
 merchants based on merchant demand in each market. We have also made significant investments in our salesforce, which builds
 merchant relationships and local expertise. Our merchant retention efforts are focused on providing merchants with a positive
 experience by offering targeted placement of their deals to our subscriber base, high quality customer service and tools to manage
 deals more effectively. For example, we recently began offering a mobile redemption application that enables our merchants to
 manage their Groupon business and maintain an ongoing relationship with their Groupon customers.

       Increase the number and variety of our products through innovation. We have launched a variety of new products in the past
 12 months and we plan to continue to launch new products to increase the number of subscribers and merchants that transact business
 through our marketplace. For example, to better target subscribers, in February 2011, we launched Deal Channels, which aggregates
 daily deals from the same category. We currently offer Deal Channels in home and garden and event tickets and travel. In addition,
 we recently have launched Groupon NOW, which is a deal initiated by a merchant on demand and offered instantly to subscribers
 through mobile devices and our website. As our local e-commerce marketplace grows, we believe consumers will use Groupon not
 only as a discovery tool for local merchants, but also as an ongoing connection point to their favorite merchants.

      Expand with acquisitions and business development partnerships. Since May 2010, we have made 13 acquisitions. Our largest
 transaction to date was our acquisition of CityDeal, a company based in Europe that operated in 80 markets in 16 countries with
 1.9 million subscribers at the time of acquisition. Excluding CityDeal, each of the companies we have acquired had less than
 $1 million in annual revenue at the time of acquisition. Typically, the core assets that we gain from an acquisition are a local
 management team and small subscriber and merchant bases, to which we then apply our expertise, resources and brand to scale the
 business. In addition to acquisitions, we have entered into agreements with local partners to expand our international presence. For
 example, in February 2011, we entered into a partnership with TCH Burgundy Limited, or Tencent, a Chinese internet company, to
 operate a Chinese e-commerce website. We have also signed partnership agreements with companies such as eBay, Microsoft, Yahoo
 and Zynga, pursuant to which these partners display, promote and distribute our deals to their users in exchange for a share of the
 revenue generated from our deals. We intend to continue to expand our business with acquisitions and business development
 partnerships.

                                                                 72




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                         Page 83 of 269
groupon.htm                                                                                                                                 6/2/11 12:35 PM


 Table of Contents

 Subscriber Economics

     We have grown our subscriber base from 0.2 million as of June 30, 2009 to 83.1 million subscribers worldwide as of March 31,
 2011. The chart below shows the number of our subscribers as of the end of each quarter since June 30, 2009:


                                                       Subscribers (in millions)




      We grow our subscriber base through marketing initiatives and word-of-mouth. Online marketing consists of search engine
 marketing, display advertisements, referral programs and affiliate marketing and has historically represented our largest operating
 expense. Our offline marketing programs include traditional television, billboard, and radio advertisements, public relations as well as
 sponsored events to increase our visibility and build our brand.

      In 2010 and the first quarter of 2011, we spent $241.5 million and $179.9 million, respectively, on subscriber acquisition. We
 acquired 48.8 million and 32.5 million subscribers, respectively, during those periods. Since our inception, we have prioritized
 growth, and investments in our marketing initiatives have contributed to our losses. Our investments in subscriber growth are driven
 by the cost to acquire a subscriber as compared to the profits we expect to generate from that subscriber over time. Once acquired,
 subscribers have been relatively inexpensive to maintain because our interaction is largely limited to daily emails and our mobile
 applications. Over time, as our business continues to scale and we become more established in a greater percentage of our markets,
 we expect that our marketing expense will decrease as a percentage of revenue.

      To demonstrate the economics of our business model, we have compared the revenue and gross profit generated from the North
 American subscribers we acquired in the second quarter of 2010, which we refer to as our Q2 2010 cohort, to the online marketing
 expenses incurred to acquire such subscribers. The Q2 2010 cohort is illustrative of trends we have seen among our North American
 subscriber base. The Q2 2010 cohort included 3.7 million subscribers that we initially spent $18.0 million in online marketing to
 acquire in the second quarter of 2010. In that quarter, we generated $29.8 million in revenue and $12.8 million in gross profit from
 the sale of approximately 1.2 million Groupons to these subscribers. Through March 31, 2011, we generated an aggregate of
 $145.3 million in revenue and $61.7 million in gross profit from the sale of approximately 6.3 million Groupons to the Q2 2010
 cohort. In summary, we spent $18.0 million in online marketing expense to acquire subscribers in the Q2 2010 cohort and generated
 $61.7 million in gross profit from this group of subscribers over four quarters.

     To further illustrate our business model, we have provided case studies for Chicago, the site of our North American headquarters
 and our oldest North American market, Boston, our second oldest North American market, Berlin, the site of our international
 headquarters, and London, both international

                                                                   73




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                             Page 84 of 269
groupon.htm                                                                                                                                         6/2/11 12:35 PM


 Table of Contents




 markets we entered through the CityDeal acquisition. The performance of these markets is not necessarily indicative of our current or
 future performance in other markets.

        Case Study: Chicago

      Chicago is the first market we entered, and we offered our first daily deal there in November 2008. Chicago is also our largest
 market. Due to our history in Chicago and the fact that we are headquartered there, we have tested new features and strategies in
 Chicago. As of June 30, 2009, we had 36,891 subscribers, and, for the second quarter of 2009, we generated $1.6 million in revenue
 from 46,909 Groupons sold. As of March 31, 2011, we had 1.5 million subscribers, and, for the first quarter of 2011, we generated
 $21.5 million in revenue from 950,689 Groupons sold. The following table shows subscribers and cumulative customers as of the end
 of each quarter and featured merchants, revenue and Groupons sold in each quarter beginning with the second quarter of 2009:

                                                                               Three Months Ended,
                              Jun. 30,      Sept. 30,      Dec. 31,        Mar. 31,    Jun. 30,    Sept. 30,         Dec. 31,         Mar. 31,
              Chicago           2009          2009          2009            2010         2010        2010             2010             2011
              Subscribers        36,891       62,038       147,882         268,056        492,826     750,118,       1,102,146        1,504,978
              Cumulative
                customers        19,003       43,023        74,237         125,403        184,074     285,987         409,746            552,712
              Featured
                merchants              67          92           131             144          157           233             470               759
              Revenue (in
                millions)    $        1.6 $        3.0 $         3.9 $          6.3 $         9.3 $       13.1 $           16.9 $            21.5
              Groupons
                sold             46,909       84,373       149,371         263,304        350,928     541,084         678,933            950,689

        Case Study: Boston

     Boston is the second market we entered, and we offered our first daily deal there in April 2009. As of June 30, 2009, we had
 17,069 subscribers, and, for the second quarter of 2009, we generated $0.7 million in revenue from 26,032 Groupons sold. As of
 March 31, 2011, we had 778,936 subscribers, and, for the first quarter of 2011, we generated $9.3 million in revenue from 388,178
 Groupons sold. The following table shows subscribers and cumulative customers as of the end of each quarter and featured merchants,
 revenue and Groupons sold in each quarter beginning with the second quarter of 2009:

                                                                              Three Months Ended,
                                 Jun. 30,     Sept. 30,     Dec. 31,        Mar. 31,    Jun. 30,        Sept. 30,      Dec. 31,         Mar. 31,
              Boston              2009          2009         2009            2010         2010            2010          2010             2011
              Subscribers         17,069       56,904       122,375          194,615        285,615      412,467       561,064          778,936
              Cumulative
                customers          8,545       20,953         36,634           62,610        94,617      142,930       197,961          272,548
              Featured
                merchants              66            75               87            110        116             145              286          456
              Revenue (in
                millions)    $        0.7 $         1.4 $         1.8 $             2.9 $       4.6 $          5.9 $            7.1 $         9.3
              Groupons
                sold              26,032       39,996         56,457           95,755       152,675      223,469       284,157          388,178

                                                                               74




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                                     Page 85 of 269
groupon.htm                                                                                                                             6/2/11 12:35 PM


 Table of Contents

        Case Study: Berlin

      Berlin was one of the international markets we entered through our acquisition of CityDeal which was completed in May 2010
 and is the site of our European headquarters. As of June 30, 2010, we had 92,500 subscribers and, for the second quarter of 2010, we
 generated $1.0 million in revenue from 47,068 Groupons sold. As of March 31, 2011, we had 396,000 subscribers, and, for the first
 quarter of 2011 we generated $6.1 million in revenue from 229,279 Groupons sold. The following table shows subscribers and
 cumulative customers as of the end of each quarter and featured merchants, revenue and Groupons sold in each quarter beginning with
 the second quarter of 2010:

                                                                                      Three Months Ended,
                                                                        Jun. 30,    Sept. 30,    Dec. 31,   Mar. 31,
              Berlin                                                      2010        2010         2010      2011
              Subscribers                                               92,500    152,800    261,200    396,000
              Cumulative customers                                       9,072     23,007     40,992     69,412
              Featured merchants                                           108        268        303        416
              Revenue (in millions)                                   $     1.0 $      2.4 $      4.5 $      6.1
              Groupons sold                                             47,068     89,321    124,585    229,279

        Case Study: London

     London also was one of the international markets we entered through our acquisition of CityDeal. As of June 30, 2010, we had
 159,156 subscribers, and for the second quarter of 2010, we generated $1.7 million in revenue from 49,564 Groupons sold. As of
 March 31, 2011, we had 1,602,968 subscribers, and, for the first quarter of 2011 we generated $20.1 million in revenue from 402,086
 Groupons sold. The following table shows subscribers and cumulative customers as of the end of each quarter and featured merchants,
 revenue and Groupons sold in each quarter beginning with the second quarter of 2010:

                                                                                     Three Months Ended,
                                                                      Jun. 30,     Sept. 30,     Dec. 31,   Mar. 31,
              London                                                    2010         2010         2010       2011
              Subscribers                                            159,156    423,660    993,622   1,602,968
              Cumulative customers                                    10,284     34,182     75,897     144,933
              Featured merchants                                         102        232        294         432
              Revenue (in millions)                                $      1.7 $      5.4 $    10.8 $      20.1
              Groupons sold                                           49,564    126,916    237,756     402,086

                                                                 75




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                         Page 86 of 269
groupon.htm                                                                                                                                6/2/11 12:35 PM


 Table of Contents

 Our Merchants

     In the first quarter of 2011, we featured deals from over 56,000 merchants worldwide. To drive merchant growth, we have
 expanded the number and variety of product offerings available through our marketplace and invested in our salesforce. The charts
 below show the number of merchants we featured in our North America segment and our International segment, which we entered in
 May 2010 with the acquisition of CityDeal, during each quarter indicated:




       Our salesforce includes over 3,500 inside and outside merchant sales representatives who build merchant relationships and
 provide local expertise. Our North American merchant sales representatives are based in our offices in Chicago and our international
 merchant sales representatives work from our 74 international offices. As the size of our salesforce has grown, the productivity of our
 sales representatives has increased. In the first quarter of 2009, when we first began investing in the development of our salesforce,
 the average number of merchants featured per sales representative per month was six and the average revenue per sales representative
 per month was $87,000. In the first quarter of 2011, the average number of merchants featured per sales representative per month was
 17 and the average revenue per sales representative per month was $172,000. The following table lists the number of sales
 representatives in our North American and International segments as of the end of each quarter beginning with the first quarter of
 2009:

                                   Mar. 31,   Jun. 30,   Sept. 30,   Dec. 31,   Mar. 31,   Jun. 30,   Sept. 30,   Dec. 31,   Mar. 31,
              Size of Salesforce    2009       2009        2009       2009       2010       2010        2010       2010       2011
              North America             2          18          44          76       128        201         348        493        661
              International             —          —           —           —         —       1,080       1,224      2,080      2,895
                Total                     2        18          44          76       128      1,281       1,572      2,573      3,556

      The number of sales representatives is higher as a percentage of revenue in our International segment due to the need to have
 separate sales organizations for most of the different countries in which we operate. Due to local economic conditions, however, the
 average cost of each sales representative is lower in most countries in our International segment as compared to the costs in our North
 American segment.

      Our standard contractual arrangements grant us the exclusive right to feature deals for a merchant's products and services for a
 limited time period and provide us with the discretion as to whether or not to offer the deal during such period. Our merchant pool
 represents the number of committed deals that we have discretion to run at any time. Our merchant pool has grown from 15 as of
 March 31, 2009 to over 40,000 as of March 31, 2011. We restrict the size of our merchant pool to manage the length of time between
 contract signing to deal launch, but have expanded the pool each quarter as we have increased our capacity to offer more deals each
 day. The scale of our merchant pool benefits our marketplace by enabling us to offer a wider variety of more relevant deals.

                                                                           76




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                            Page 87 of 269
groupon.htm                                                                                                                                   6/2/11 12:35 PM


 Table of Contents

      The charts below show the size of our merchant pool for our North America segment and our International segment, which we
 entered in May 2010 with the acquisition of CityDeal, as of the end of each quarter indicated:

                             North American Merchant Pool                                     International Merchant Pool




 Our Products

      As our operations have grown, we have increased the number and variety of products that we offer. Our new products have
 allowed us to serve more merchants each day by segmenting our subscriber base, offering more relevant, targeted deals and increasing
 the rate at which deals are purchased within each segment. We employ an algorithmic approach to deal targeting based on data
 collected by us about our subscribers, merchants and deals. We launched our first targeted deals in June 2010 in our largest North
 American markets. The combination of our North American salesforce of 661 as of March 31, 2011, our technology platform and our
 merchant pool of over 20,000 merchants as of March 31, 2011 gives us the ability to target deals to subsets of North American
 subscribers within a particular market. In addition, instead of featuring one deal per city per day, we can feature multiple deals per
 city per day matched to different groups of subscribers based on what we know about their personal preferences. We intend to
 continue to build our international infrastructure to enable us to offer targeted deals worldwide, as targeting increases the number of
 deals that we can offer across our marketplace.

     Our products include:

       Featured Daily Deals. We distribute a featured daily deal by email on behalf of local merchants to subscribers using our
 targeting technology, which distributes deals to subscribers based on their location and personal preferences. We also have offered
 daily deals from more than 40 national merchants, including Bath & Body Works, The Body Shop, Hyatt Regency, InterContinental
 Hotels, Lions Gate, Redbox, Shutterfly and Zipcar across subsets of the North American market. We initially offered one daily deal to
 all subscribers in a given market but now offer several daily deals in most established markets. We launched this product in
 November 2008 and it is offered in all of our North American and international markets.

      Deals Nearby. Daily deals that do not appear as a featured daily deal appear as Deals Nearby. Each Deal Nearby currently is
 summarized in fewer than 20 words next to the featured daily deal. Deals Nearby often extend beyond the subscriber's closest market
 or buying preferences. Deals Nearby can also be targeted to certain subscribers, where access to the deal can only be obtained
 through an emailed hyperlink. Upon clicking the hyperlink, a subscriber is directed to a full description of the deal that is presented in
 the same format as the subscriber's featured daily deal. We launched this product in January 2009 and it is offered in substantially all
 of our North American and international markets.

                                                                    77




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                               Page 88 of 269
groupon.htm                                                                                                                     6/2/11 12:35 PM


 Table of Contents

     The following graphic captures the featured daily deal and all Deals Nearby offered in Washington, DC on March 24, 2011:




      National Deals. National merchants also have used our marketplace as an alternative to traditional marketing and brand
 advertising. Although our primary focus continues to be on local deals, we use

                                                                78




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                 Page 89 of 269
groupon.htm                                                                                                                                6/2/11 12:35 PM


 Table of Contents




 national deals from time to time to build our brand awareness, acquire new customers and generate additional revenue. As an
 example, on August 19, 2010, we emailed and posted a Groupon daily deal offering $50 of apparel at Gap for $25 to 9.2 million
 subscribers across 85 markets in North America. We sold approximately 433,000 Groupons in 24 hours, generating over
 $10.8 million in revenue. Of the consumers who purchased Groupons, approximately 200,000 were new subscribers. The Gap deal
 was our first deal from a national brand that we distributed across our North American markets. Since the Gap deal, we have featured
 deals from Barnes & Noble, FTD and Nordstrom across our North American markets.

      Groupon NOW. Groupon NOW is a deal initiated by a merchant on demand and offered instantly to subscribers through mobile
 devices and our website. Groupon NOW deals target subscribers within close proximity of the merchant and the purchased Groupons
 typically expire within a few hours of the deal launch. Merchants launch Groupon NOW deals from our platform and can use this
 product to attract customers when they have excess capacity. We launched Groupon NOW in the second quarter of 2011 in selected
 North American markets.

      Deal Channels. Deal Channels aggregate daily deals from the same category and are accessible through our website and
 through email alerts that subscribers sign up to receive. We currently offer Deal Channels in home and garden and event tickets and
 travel. Merchants can register their deals to be included in a Deal Channel. Subscribers can use Deal Channels to focus on deals that
 are of interest to them. We launched Deal Channels in February 2011 in selected North American markets.

      Self-Service Deals. Self-Service Deals allows our merchants to use a self-service platform to create and launch deals at their
 discretion. The use of the platform is free and allows merchants to establish a permanent e-commerce presence on Groupon that can
 be visited and followed by subscribers. We receive a portion of the purchase price from deals sold through Self-Service Deals based
 on the extent to which we marketed the deal. We launched Self-Service Deals in December 2010 in selected North American markets.

 Distribution

      We distribute our deals directly through several platforms: a daily email, our websites, our mobile applications and social
 networks. We also utilize various online affiliates to display and promote Groupon deals on their websites, as well as agreements with
 several large online brands to distribute our deals. Our large online affiliates include eBay, Microsoft, Yahoo and Zynga. Other
 partnerships allow us to distribute daily deals to a partner's user base. For example, in December 2010, we partnered with Redbox to
 offer a daily deal to their user base and we acquired over 200,000 new customers through that offer and in March 2011, we partnered
 with eBay to offer a daily deal to their user base and we acquired over 290,000 new customers through that offer.

      In addition, we have partnered with thousands of smaller online affiliates. Affiliates can embed our widget onto their website and
 earn a commission when their website visitors purchase Groupons through the affiliate link. Our commission rate varies depending on
 whether the customer is new or existing and the website's overall sales volume. We also offer commissions to affiliates when they
 refer a customer to Groupon. We expect to continue to pursue relationships to extend the distribution of our deals.

      We also use various customer loyalty and reward programs to build brand loyalty and provide customers with incentives to buy
 Groupons. When customers perform qualifying acts, such as providing a referral to a new subscriber or participating in promotional
 offers, we grant the customer credits that can be redeemed for awards such as free or discounted goods or services in the future.

     Email. The featured daily deal email contains one headline deal with a full description of the deal and often contains links to
 "More Great Deals Nearby," all of which are available within a subscriber's market. A subscriber who clicks on a deal within the daily
 email is directed to our website to learn more

                                                                   79




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                            Page 90 of 269
groupon.htm                                                                                                                                   6/2/11 12:35 PM


 Table of Contents




 about the deal and to purchase the Groupon. We sometimes email "WOW" deals to targeted subscribers as they are available, which
 are deals that have performed well in the past and can be offered on behalf of the merchant on demand.

      Websites. Visitors are prompted to register as a subscriber when they first visit our website and thereafter use the website as a
 portal for featured daily deals, Deals Nearby, national deals, and where available, Deal Channels and Self-Service Deals. Our website
 also provides opportunities to engage with the Groupon community through the GrouBLOGpon, a blog maintained by our employees,
 Groupon Meetups, a forum for meeting with others to redeem Groupons at a particular location, Groupon Flickr, a collection of
 digital photos from subscribers, and rewards programs for referring new subscribers, such as our offer of $10 in Groupon Bucks to
 subscribers who refer someone who later buys a Groupon.

      Mobile Applications. Consumers also access our deals through our mobile applications, which are available on the iPhone,
 Android, Blackberry and Windows mobile operating systems. We launched our first mobile application in March 2010 and our
 applications have been downloaded 8.8 million times since then. These applications enable consumers to browse, purchase, manage
 and redeem deals on their mobile devices as well as access Groupon NOW deals that are offered based on the location of the
 subscriber.

      Social Networks. We publish our daily deals through various social networks and our notifications are adapted to the particular
 format of each of these social networking platforms. Our website and mobile application interfaces enable our consumers to push
 notifications of our deals to their personal social networks.

 Operations

     Our business operations are divided into the following core functions to address the needs of our merchants and customers.

      City Planners. Our city planners identify merchant leads and manage deal scheduling to maximize deal quality and variety
 within our markets. In identifying leads, city planners rank local merchants based on reviews, local feedback and other data. In certain
 cases, city planners submit requests to merchant services representatives for certain deals based on a scoring system that considers
 past performance of similar deals, quality of merchant reviews, number of redemption locations and the zip code of the merchant. In
 scheduling deals, city planners review deals in our merchant pool and determine which deals to offer based on the viability of the deal
 as well as gross profit and marketing goals. City planners also work with our salesforce to establish sales quotas based on
 subcategory-level performance in a particular city, such as addressable market size and scheduling diversity. As of March 31, 2011,
 we employed 410 city planners.

      Editorial. Our editorial department is responsible for creating editorial content on the daily deals we offer, as well as additional
 content featured on our website. Each deal that we feature typically goes through several stages to ensure that the deal description
 meets our standards for accuracy, quality and editorial voice. After offer details are reviewed, our editorial staff verifies the accuracy
 of the deal and its value through independent research. Once a deal is vetted, our editorial staff drafts a full description of the deal,
 which is passed through voice editing and copy editing before being launched. As of March 31, 2011, we employed 925 editorial
 staff.

                                                                    80




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                               Page 91 of 269
groupon.htm                                                                                                                                     6/2/11 12:35 PM


 Table of Contents

      Merchant Services. Once a contract is signed, one of our merchant services representatives initiates the first of several
 communications with the merchant to introduce the merchant to the tools that we provide and plan for Groupon redemptions through
 expiration. Typically, a merchant services representative communicates with merchants before, during, and after a daily deal is
 featured. Before the deal is run, the representative works with the merchant to prepare staffing and inventory capacity in anticipation
 of increased customer traffic. The representative communicates with the merchant on the day the deal is featured to review deal
 performance. After the deal has closed, the representative maintains contact with the merchant to support the merchant's redemption
 efforts and to prepare the merchant for a potential spike in redemption near expiration. We also offer several merchant tools to help
 merchants manage their deals. These tools include status updates on deal performance, analytics that measure purchase traffic and
 demographic information of purchasers, a capacity calculator to estimate demand for the deal ahead of its feature date, and a return on
 investment calculator that estimates the return on investment that the merchant may receive from the deal. Each of these tools is
 accessible through an online account that is personal to the merchant and accessed through our website. As of March 31, 2011, we
 employed 277 merchant services representatives.

      Customer Service Representatives. Our customer service representatives can be reached via phone or email 24 hours a day,
 seven days a week. Our Groupon Promise is core to our customer service philosophy. The customer service team also works with our
 information technology team to improve the customer experience on the website and mobile applications based on customer feedback.
 As of March 31, 2011, we employed 825 customer representatives.

     Technology. We employ technology to improve the experience we offer to subscribers and merchants, increase the rate at which
 our subscribers purchase Groupons, and enhance the efficiency of our business operations. A component of our strategy is to continue
 developing and refining our technology.

      We currently use a common technology platform across our North American operations that includes business operations tools to
 track internal workflow, applications and infrastructure to serve content at scale, dashboards and reporting tools to display operating
 and financial metrics for historical and ongoing deals, and a publishing and purchasing system for consumers. Over time, we plan to
 merge our North American technology platform with our international technology platforms and we expect this to enable greater
 efficiencies and consistency across our global organization.

     Our websites are hosted at U.S. datacenters in Miami, Florida and Dallas, Texas and international datacenters in Asia and Europe.
 Our data centers host our public-facing websites and applications, as well as our back-end business intelligence systems. We use
 commercial antivirus, firewall and patch-management technologies to protect and maintain the systems located at our data centers.
 We have invested in intrusion detection and pattern detection tools to try to recognize intrusions to our website. We have also
 engaged a third-party internet security provider to test the security of our website and identify vulnerabilities. In financial transactions
 between our website and our customers, we use Secure Socket Layer to provide encryption in transferring data. We have designed
 our websites to be available, secure and cost-effective using a variety of proprietary software and freely available and commercially
 supported tools. We believe we can scale to accommodate increasing numbers of subscribers by adding relatively inexpensive
 industry-standard hardware or using a third-party provider of computing resources.

      We devote a substantial portion of our resources to developing new technologies and features and improving our core
 technologies. Our information technology team is focused on the design and development of new features and products, maintenance
 of our websites and development and maintenance of our internal operations systems. As of March 31, 2011, our information
 technology team consisted of 253 employees.

                                                                     81




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                                 Page 92 of 269
groupon.htm                                                                                                                                   6/2/11 12:35 PM


 Table of Contents

 Competition

      Since our inception, a substantial number of competing group buying sites have emerged around the world attempting to replicate
 our business model. These competitors offer substantially the same or similar product offerings as us. We also compete with
 businesses that focus on particular merchant categories or markets. We increasingly compete against other large internet and
 technology-based businesses, such as Facebook, Google and Microsoft, each of which have launched initiatives which are competitive
 to our business. We also compete with traditional offline coupon and discount services, as well as newspapers, magazines and other
 traditional media companies that provide coupons and discounts on products and services. We believe the principal competitive
 factors in our market include the following:

        •       breadth of subscriber base and merchants featured;

        •       local presence and understanding of local business trends;

        •       ability to deliver a high volume of relevant deals to consumers;

        •       ability to produce high purchase rates for deals among subscribers;

        •       ability to generate positive return on investment for merchants; and

        •       strength and recognition of our brand.

       We believe we compete favorably on the factors described above. However, we anticipate that larger, more established
 companies may directly compete with us as we continue to demonstrate the viability of a local e-commerce business model. Many of
 our current and potential competitors have longer operating histories, significantly greater financial, technical, marketing and other
 resources and larger customer bases than we do. These factors may allow our competitors to benefit from their existing customer or
 subscriber base with lower acquisition costs or to respond more quickly than we can to new or emerging technologies and changes in
 customer requirements. These competitors may engage in more extensive research and development efforts, undertake more far-
 reaching marketing campaigns and adopt more aggressive pricing policies, which may allow them to build a larger subscriber base or
 to monetize that subscriber base more effectively than us. Our competitors may develop products or services that are similar to our
 products and services or that achieve greater market acceptance than our products and services.

 Regulation

      We are subject to a number of foreign and domestic laws and regulations that affect companies conducting business on the
 internet, many of which are still evolving and could be interpreted in ways that could harm our business. In the United States and
 abroad, laws relating to the liability of providers of online services for activities of their users and other third parties are currently
 being tested by a number of claims. These regulations and laws may involve taxation, tariffs, subscriber privacy, data protection,
 content, copyrights, distribution, electronic contracts and other communications, consumer protection, the provision of online payment
 services and the characteristics and quality of services. It is not clear how existing laws governing issues such as property ownership,
 sales and other taxes, libel and personal privacy apply to the internet as the vast majority of these laws were adopted prior to the
 advent of the internet and do not contemplate or address the unique issues raised by the internet or e-commerce. In addition, it is
 possible that governments of one or more countries may seek to censor content available on our websites or may even attempt to
 completely block access to our websites. Accordingly, adverse legal or regulatory developments could substantially harm our
 business.

      Groupons may be considered gift cards, gift certificates, stored value cards or prepaid cards and therefore governed by, among
 other laws, the CARD Act and state laws governing gift cards, stored value cards and coupons. Many of these laws contain provisions
 governing the use of gift cards, gift certificates, stored value cards or prepaid cards, including specific disclosure requirements and
 prohibitions or limitations on the use of expiration dates and the imposition of certain fees. If Groupons are subject to the

                                                                    82




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                               Page 93 of 269
groupon.htm                                                                                                                                      6/2/11 12:35 PM


 Table of Contents



 CARD Act, the value of the Groupon must not expire before the later of (i) five years after the date on which the Groupon was issued
 or the date on which the customer last loaded funds on the Groupon if the Groupon has a reloadable feature; and (ii) the Groupon's
 expiration date (if any). We are currently subject to several purported class actions claiming that Groupons are subject to the CARD
 Act.

      In addition, certain states and foreign jurisdictions have requirements for disclosure and product terms and conditions, including
 expiration dates and permissible fees, that might apply to a Groupon. Some states and foreign jurisdictions also include gift cards
 under their unclaimed and abandoned property laws which require companies to remit to the government the value of the unredeemed
 balance on the gift cards after a specified period of time (generally between one and five years) and impose certain reporting and
 recordkeeping obligations. We do not remit any amounts relating to unredeemed Groupons based upon our assessment of applicable
 laws. The analysis of the potential application of the unclaimed and abandoned property laws to Groupons is complex, involving an
 analysis of constitutional and statutory provisions and factual issues, including our relationship with customers and merchants and our
 role as it relates to the issuance and delivery of a Groupon. We are currently subject to several actions claiming that Groupons are
 subject to various unclaimed and abandoned property laws.

      Many states have passed laws requiring notification to subscribers when there is a security breach of personal data. There are also
 a number of legislative proposals pending before the U.S. Congress, various state legislative bodies and foreign governments
 concerning data protection. In addition, data protection laws in Europe and other jurisdictions outside the United States may be more
 restrictive, and the interpretation and application of these laws are still uncertain and in flux. It is possible that these laws may be
 interpreted and applied in a manner that is inconsistent with our data practices. If so, in addition to the possibility of fines, this could
 result in an order requiring that we change our data practices, which could have an adverse effect on our business. Furthermore, the
 Digital Millennium Copyright Act has provisions that limit, but do not necessarily eliminate, our liability for linking to third-party
 websites that include materials that infringe copyrights or other rights, so long as we comply with the statutory requirements of this
 act. Complying with these various laws could cause us to incur substantial costs or require us to change our business practices in a
 manner adverse to our business.

        Various federal laws, such as the Bank Secrecy Act and the USA PATRIOT Act, impose certain anti-money laundering
 requirements on companies that are financial institutions or that provide financial products and services. For these purposes, financial
 institutions are broadly defined to include money services businesses such as money transmitters, check cashers and sellers or issuers
 of stored value. Examples of anti-money laundering requirements imposed on financial institutions include customer identification
 and verification programs, record retention policies and procedures and transaction reporting. We do not believe that we are a
 financial institution subject to these laws and regulations based, in part, on the characteristics of the Groupons and our role with
 respect to the distribution of the Groupons to customers. However, the Financial Crimes Enforcement Network, a division of the U.S.
 Treasury Department tasked with implementing the requirements of the Bank Secrecy Act, recently proposed amendments to the
 scope and requirements for parties involved in stored value or prepaid access, including a proposed expansion of the definition of
 financial institution to include sellers or issuers of prepaid access. In the event that this proposal is adopted as proposed, it is possible
 that a Groupon could be considered a financial product and that we could be a financial institution.

     We are or may be subject to similar laws and regulations in jurisdictions outside of the United States.

 Intellectual Property

    We protect our intellectual property rights by relying on federal, state and common law rights, as well as contractual restrictions.
 We control access to our proprietary technology by entering into confidentiality and invention assignment agreements with our
 employees and contractors, and confidentiality agreements with third parties.

                                                                      83




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                                  Page 94 of 269
groupon.htm                                                                                                                                     6/2/11 12:35 PM


 Table of Contents

      In addition to these contractual arrangements, we also rely on a combination of trade secrets, copyrights, trademarks, service
 marks, trade dress, domain names and patents to protect our intellectual property. We pursue the registration of our copyrights,
 trademarks, service marks and domain names in the United States and in certain locations outside the United States. Our trademarks
 in the United States or other countries include Groupon®, Groupon NOW, CityDeal, Grouspawn and the Groupon logo, as well as
 others, and as of May 5, 2011, we owned one patent and had five patent applications pending.

       Circumstances outside our control could pose a threat to our intellectual property rights. For example, effective intellectual
 property protection may not be available in the United States or other countries in which we operate. Also, the efforts we have taken
 to protect our proprietary rights may not be sufficient or effective. Any significant impairment of our intellectual property rights could
 harm our business or our ability to compete. Also, protecting our intellectual property rights is costly and time-consuming. Any
 unauthorized disclosure or use of our intellectual property could make it more expensive to do business and harm our operating
 results.

       Companies in the internet, social media technology and other industries may own large numbers of patents, copyrights and
 trademarks and may frequently request license agreements, threaten litigation or file suit against us based on allegations of
 infringement or other violations of intellectual property rights. We are currently subject to, and expect to face in the future, allegations
 that we have infringed the trademarks, copyrights, patents and other intellectual property rights of third parties, including our
 competitors and non-practicing entities. As we face increasing competition and as our business grows, we will likely face more
 claims of infringement.

 Employees

     As of March 31, 2011, we had 1,724 employees in our North America segment, consisting of 811 corporate and operational staff,
 661 sales representatives and 252 customer service representatives, and 5,383 employees in our International segment, consisting of
 consisting of 1,915 corporate and operational staff, 2,895 sales representatives and 573 customer service representatives.

 Properties

      Our principal executive offices in North America are located in Chicago, Illinois and our principal international executive offices
 are located in Berlin, Germany. As of March 31, 2011, the properties listed below represented our materially important facilities, both
 of which are leased. We believe that our properties are generally suitable to meet our needs for the foreseeable future. However, we
 will continue to seek additional space as needed to satisfy our growth.

                                                                Square         Operating
              Description of Use                                Footage         Segment               Lease Expiration
              Corporate office facilities                       358,000     North America         From 2011 through 2017
              Corporate office facilities                       298,000      International        From 2011 through 2016

 Legal Proceedings

       We currently are involved in several disputes or regulatory inquiries, including suits by our customers (individually or as class
 actions) alleging, among other things, violation of the CARD Act and state laws governing gift cards, stored value cards and coupons,
 violations of unclaimed and abandoned property laws and violations of privacy laws. The number of these disputes and inquiries is
 increasing. Any claims or regulatory actions against us, whether meritorious or not, could be time consuming, result in costly
 litigation, damage awards, injunctive relief or increased costs of doing business through adverse judgment or settlement, require us to
 change our business practices in expensive ways, require significant amounts of management time, result in the diversion of
 significant operational resources or otherwise harm our business.

                                                                     84




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                                 Page 95 of 269
groupon.htm                                                                                                                                  6/2/11 12:35 PM


 Table of Contents

       In addition, third parties have from time to time claimed, and others may claim in the future, that we have infringed their
 intellectual property rights. We are subject to intellectual property disputes, and expect that we will increasingly be subject to
 intellectual property infringement claims as our services expand in scope and complexity. We have in the past been forced to litigate
 such claims. We may also become more vulnerable to third-party claims as laws such as the Digital Millennium Copyright Act are
 interpreted by the courts, and as we become subject to laws in jurisdictions where the underlying laws with respect to the potential
 liability of online intermediaries like ourselves are either unclear or less favorable. We believe that additional lawsuits alleging that
 we have violated patent, copyright or trademark laws will be filed against us. Intellectual property claims, whether meritorious or not,
 are time consuming and costly to resolve, could require expensive changes in our methods of doing business, or could require us to
 enter into costly royalty or licensing agreements.

       From time to time, we may become party to additional litigation incident to the ordinary course of business. Although the results
 of litigation and claims cannot be predicted with certainty, we currently believe that the final outcome of these matters will not have a
 material adverse effect on our business. Regardless of the outcome, litigation can have an adverse impact on us because of defense
 and settlement costs, diversion of management resources and other factors.

                                                                    85




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                              Page 96 of 269
groupon.htm                                                                                                                             6/2/11 12:35 PM


 Table of Contents


                                                               MANAGEMENT

 Executive Officers and Directors

     The following table sets forth information about our executive officers and directors as of June 2, 2011:

              Name                                             Age                           Position
              Executive Officers:
               Andrew D. Mason                                  30    Co-Founder, Chief Executive Officer and Director
               Jason E. Child                                   42    Chief Financial Officer
               Margaret H. Georgiadis                           47    Chief Operating Officer
               Brian K. Totty                                   44    Senior Vice President—Engineering and Operations

              Directors:
               Eric P. Lefkofsky                                42    Co-Founder and Executive Chairman of the Board
                Peter J. Barris(2)(3)                           59    Director
                Kevin J. Efrusy(1)(2)                           39    Director
                Bradley A. Keywell (2)(3)                       41    Co-Founder and Director
                Theodore J. Leonsis (1)(2)(3)                   55    Vice Chairman of the Board
                Howard Schultz(1)                               57    Director


              (1)     Member of our Audit Committee.

              (2)     Member of our Compensation Committee.

              (3)     Member of our Nominating and Corporate Governance Committee.


        Executive Officers

      Andrew D. Mason is a co-founder of the Company and has served as our Chief Executive Officer and a director since our
 inception. In 2007, Mr. Mason co-founded ThePoint, a web platform that enables users to promote collective action to support social,
 educational and civic causes, from which Groupon evolved. Prior to co-founding ThePoint, Mr. Mason worked as a computer
 programmer with Innerworkings, Inc. (NASDAQ:INWK). Mr. Mason received his Bachelor of Arts from Northwestern University.
 Mr. Mason brings to our Board the perspective and experience as one of our founders and as Chief Executive Officer. Mr. Mason was
 elected to the Board pursuant to voting rights granted to holders of our common stock and preferred stock under our voting
 agreement, which will be terminated upon the closing of this offering.

     Jason E. Child has served as our Chief Financial Officer since December 2010. From March 1999 through December 2010,
 Mr. Child held several positions with Amazon.com, Inc. (NASDAQ: AMZN), including Vice President of Finance, International from
 April 2007 to December 2010, Vice President of Finance, Asia from July 2006 to July 2007, Director of Finance, Amazon Germany,
 from April 2004 to July 2006, Director of Investor Relations from April 2003 to April 2004, Director of Finance, Worldwide
 Application Software from November 2001 to April 2003, Director of Finance, Marketing and Business Development from
 November 2000 to November 2001 and Global Controller from October 1999 to November 2000. Prior to joining Amazon.com,
 Mr. Child spent more than seven years at Arthur Andersen where he was a C.P.A. and a consulting manager. Mr. Child received his
 Bachelor of Arts from the Foster School of Business at the University of Washington.

     Margaret H. Georgiadis has served as our Chief Operating Officer since May 2011. From October 2009 through April 2011,
 Ms. Georgiadis served as Vice President, Global Sales Operations at Google, Inc. (NASDAQ: GOOG), where she managed sales
 operations across regions and channels and the global technology teams that commercialize Google's products. She also led the local
 and commerce businesses. From January 2009 to September 2009, she served as a Principal at Synetro Capital, a private equity group
 in Chicago, Illinois. From August 2004 to December 2008, Ms. Georgiadis was Executive Vice President of

                                                                        86




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                         Page 97 of 269
groupon.htm                                                                                                                                   6/2/11 12:35 PM


 Table of Contents



 Card Products and Chief Marketing Officer at Discover Financial Services in Riverwoods, Illinois. From 1990 to 2004, she was a
 partner at McKinsey and Company in London and Chicago. Ms. Georgiadis has served on the board of directors of The Jones Group
 Inc. (NYSE: JNY) since January 2009. Ms. Georgiadis received her AB in Economics from Harvard and her Master of Business
 Administration from Harvard Business School.

     Brian K. Totty, Ph.D., has served as our Senior Vice President of Engineering since November 2010. Dr. Totty was the Chief
 Executive Officer of Ludic Labs, Inc., a startup venture developing a new class of software applications from January 2006 through
 November 2007. We acquired Ludic Labs in November 2010. Dr. Totty also was a co-founder and Senior Vice President of Research
 and Development of Inktomi Corporation from February 2006 to August 2007. Dr. Totty received his Ph.D. in computer science from
 the University of Illinois at Urbana-Champaign, his Master of Public Administration from Harvard's Kennedy School and his
 Bachelor of Science from the Massachusetts Institute of Technology.

        Directors

      Eric P. Lefkofsky is a co-founder of the Company and has served as our Executive Chairman since our inception. Mr. Lefkofsky
 was elected to the Board pursuant to voting rights granted to the former holders of our Series B Preferred Stock under our voting
 agreement, which will be terminated upon the closing of this offering. Mr. Lefkofsky is a co-founder of Echo Global Logistics, Inc.
 (NASDAQ: ECHO) and has served on its board of directors since February 2005. Mr. Lefkofsky is the co-founder of InnerWorkings,
 Inc. (NASDAQ: INWK) and has served on its board of directors since August 2008. In 2008, Mr. Lefkofsky co-founded Lightbank
 LLC, a private investment firm specializing in information technology companies, and has served as a manager since that time. In
 April 2006, Mr. Lefkofsky co-founded MediaBank, LLC, an electronic exchange and database that automates the procurement and
 administration of advertising media, and has served as a director or manager since that time. From May 2000 to April 2001,
 Mr. Lefkofsky served as Chief Operating Officer and director of HA-LO Industries Inc. Mr. Lefkofsky co-founded Starbelly.com,
 Inc., and served as its President from September 1999 to May 2000, at which point Starbelly.com was acquired by HA-LO. In July
 2001, HA-LO filed for bankruptcy under Chapter 11 of the United States Bankruptcy Code. Mr. Lefkofsky also serves on the board of
 directors of Children's Memorial Hospital, the board of trustees of the Steppenwolf Theatre, the board of trustees of the Art Institute of
 Chicago and the board of trustees of the Museum of Contemporary Art in Chicago. Mr. Lefkofsky holds a bachelor's degree from the
 University of Michigan and a Juris Doctor degree from the University of Michigan Law School. Mr. Lefkofsky brings to the Board an
 in-depth knowledge and understanding of the Company's business as one of its founders as well as experience as the director of
 several public companies.

      Peter J. Barris has served on our Board since January 2008. Mr. Barris was elected pursuant to voting rights granted to New
 Enterprise Associates under our voting agreement, which will be terminated upon the closing of this offering. Since July 2009,
 Mr. Barris has served on the board of directors of Echo Global Logistics, Inc. (NASDAQ: ECHO) and since January 2006, Mr. Barris
 has served on the board of directors of InnerWorkings, Inc. (NASDAQ: INWK). Since 1999, Mr. Barris has been the Managing
 General Partner of New Enterprise Associates where he specializes in information technology investing. Mr. Barris also serves on the
 board of directors of Vonage Holdings Corp. (NASDAQ: VG) and Neutral Tandem, Inc. (NASDAQ: TNDM). Mr. Barris is a member
 of the board of trustees, Northwestern University and board of advisors, Tuck's Center for Private Equity and Entrepreneurship at
 Dartmouth. He received a Master of Business Administration from Dartmouth College and a Bachelor of Science in Electrical
 Engineering from Northwestern University. Mr. Barris brings to the Board a sophisticated knowledge of information technology
 companies that includes investments in over twenty information technology companies that have completed public offerings or
 successful mergers as well as experience serving as a director of several public companies.

                                                                    87




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                               Page 98 of 269
groupon.htm                                                                                                                              6/2/11 12:35 PM


 Table of Contents

      Kevin J. Efrusy has served on our Board since November 2009. Mr. Efrusy was elected pursuant to voting rights granted to Accel
 Growth Fund L.P. under our voting agreement, which will be terminated upon the closing of the offering. Mr. Efrusy joined Accel in
 2003 where serves as a General Partner. From 1999 to 2002 he co-founded and served as President and VP of Business Development
 of IronPlanet, an online marketplace for heavy equipment. In 1998 he was a co-founder of Corio, an ASP/SaaS pioneer that went
 public on NASDAQ and was acquired by IBM in 2005. Mr. Efrusy was a product manager at Zip2 from 1996 to 1997 and an
 Associate Consultant at Bain & Company from 1995 to 1996. Mr. Efrusy also serves on the boards of directors of several private
 consumer internet service and SaaS/open source software companies. He formerly served on the boards of Xensource (acquired by
 Citrix in 2007), Springsource (acquired by VMWare in 2009), and BBN Technologies (acquired by Raytheon in 2009). Mr. Efrusy
 received his Master of Business Administration from the Stanford Graduate School of Business where he was an Arjay Miller
 Scholar. He received his Master of Science in Electrical Engineering, Bachelor of Science in Electrical Engineering, and Bachelor of
 Arts from Stanford University. Mr. Efrusy brings to the Board an in-depth knowledge of the consumer internet services industry.

      Bradley A. Keywell is a co-founder of the Company and has served on our Board since December 2006. Mr. Keywell was elected
 pursuant to voting rights granted to the holders of our Series B preferred stock under our voting agreement, which will be terminated
 upon the closing of this offering. Mr. Keywell is a co-founder of Echo Global Logistics, Inc. (NASDAQ: ECHO) and has served on
 its board of directors since February 2005. In 2008, Mr. Keywell co-founded Lightbank LLC, a private investment firm specializing
 in information technology companies, and has served as a manager since that time. In April 2006, Mr. Keywell co-founded
 MediaBank, LLC, an electronic exchange and database that automates the procurement and administration of advertising media, and
 has served as a director or manager since that time. From May 2000 to March 2001, Mr. Keywell served as the President of HA-LO
 Industries Inc. Mr. Keywell co-founded Starbelly.com Inc., which was acquired by HA-LO in May 2000. In July 2001, HA-LO filed
 for bankruptcy under Chapter 11 of the United States Bankruptcy Code. Mr. Keywell also serves as a trustee of Equity Residential
 (NYSE: EQR), a real estate investment trust. Mr. Keywell serves on the board of trustees of the Zell-Lurie Entrepreneurship Institute
 at the University of Michigan, the NorthShore University HealthSystem Foundation and the Museum of Contemporary Art in
 Chicago. Mr. Keywell is the Chairman of the Illinois Innovation Council. Mr. Keywell is also the founder and Chairman of Chicago
 Ideas Week and the Connect to the Future Foundation. Mr. Keywell holds a bachelor's degree from the University of Michigan and a
 Juris Doctor degree from the University of Michigan Law School. Mr. Keywell brings to the Board an in-depth knowledge and
 understanding of the information technology sector as well as experience as a director of a public company.

      Theodore J. Leonsis has served on our Board since June 2009 and as our Vice Chairman since April 2011. Mr. Leonsis was
 elected pursuant to voting rights granted to the holders of our common stock and preferred stock under our voting agreement, which
 will be terminated upon the closing of this offering. Since 1999, Mr. Leonsis has served as the Chairman and Chief Executive Officer
 of Monumental Sports & Entertainment, LLC, a sports and entertainment company that owns the NBA's Washington Wizards, NHL's
 Washington Capitals, WNBA's Washington Mystics, the Verizon Center in Washington, D.C. and the Baltimore-Washington
 Ticketmaster franchise. Mr. Leonsis also has served as a Vice Chairman Emeritus of AOL LLC, a leading global Web company, since
 December 2006. Mr. Leonsis held a number of other executive positions with AOL from September 1994 to December 2006, most
 recently as Vice Chairman and President, AOL Audience Business. Mr. Leonsis has served as a director of American Express Co.
 (NYSE: AXP) since July 2010, a director of Rosetta Stone Ltd. (NYSE: RST) since December 2009 and a director of NutriSystem,
 Inc. (NASDAQ: NTRI) since December 2008. Mr. Leonsis also serves on the board of directors of several private internet and
 technology companies. Mr. Leonsis is an acknowledged innovator and internet entrepreneur. Mr. Leonsis brings to the Board his
 experiences in digital businesses, his innovative approaches, and his expertise in identifying business opportunities and driving new
 strategies based on changing technologies, social media, and the internet.

                                                                  88




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                          Page 99 of 269
groupon.htm                                                                                                                                    6/2/11 12:35 PM


 Table of Contents

      Howard Schultz has served on our Board since February 2011. Mr. Schultz was elected pursuant to pursuant to voting rights
 granted to the holders of our common stock and preferred stock under our voting agreement, which will be terminated upon the
 closing of this offering. Mr. Schultz is the founder of Starbucks Corporation (NASDAQ: SBUX) and serves as its Chairman,
 President and Chief Executive Officer. Mr. Schultz has served as the Chairman of Starbucks since 1985 and reassumed the role of
 President and Chief Executive Officer in January 2008. Mr. Schultz also served as a director of Dreamworks, Animation SKG, Inc.
 (NASDAQ: DWA) from October 2004 and May 2008. As the founder of Starbucks, Mr. Schultz brings to the Board a record of
 innovation, achievement and leadership as well as almost 30 years of experience in brand marketing and international distribution and
 operations.

 Our Founders

      Andrew D. Mason, our Chief Executive Officer, Eric P. Lefkofsky, our Executive Chairman, and Bradley A. Keywell, one of our
 directors (who we collectively refer to in this prospectus as our "founders"), founded Groupon in November 2008. Groupon evolved
 from The Point, which is a web platform that enables users to promote collective action in support of social, educational or other
 causes. Mr. Mason conceived of the idea for The Point in 2006 and Mr. Lefkofsky provided funding to the business, which led to its
 launch in November 2007. In November 2008, Groupon began operations when Mr. Mason decided to apply the concept of web-
 based collective action to create an e-commerce marketplace.

      Working closely together since our inception, Messrs. Mason and Lefkofsky have had key roles in the management of our
 company. Mr. Mason serves as our Chief Executive Officer and Mr. Lefkofsky serves as our Executive Chairman of our Board of
 Directors. As Executive Chairman, Mr. Lefkofsky will continue to work actively with Mr. Mason and senior management concerning
 a broad range of operating and strategic issues.

      In addition, as a result of the concentration of our capital stock ownership with our founders, they will have significant influence
 over management and over all matters requiring stockholder approval, including the election of directors and significant corporate
 transactions, such as a merger or other sale of our company or its assets, for the foreseeable future. Our Class B common stock
 has        votes per share and our Class A common stock has one vote per share. As of                  2011, our founders owned shares of
 Class A common stock and Class B common stock representing approximately                 % of the voting power of our outstanding capital
 stock. As a result of this dual class structure, our founders will continue to be able to control all matters submitted to our stockholders
 for approval even if they come to own less than 50% of the outstanding shares of our common stock.

 Consulting Arrangements

     Oliver Samwer and Marc Samwer ("Messrs. Samwer") are the founders of CityDeal, a European-based collective buying power
 business that we acquired in May 2010. Since the CityDeal acquisition, Messrs. Samwer have served as consultants and been
 extensively involved in the development and operations of our International segment.

      Messrs. Samwer entered into consulting agreements with CityDeal on May 12, 2010. Pursuant to their consulting agreements,
 Messrs. Samwer advise CityDeal with respect to its goals and spend at least 50% of their work hours consulting for CityDeal.
 Messrs. Samwer do not receive any additional compensation from CityDeal or Groupon in connection with their consulting role. The
 term of Messrs. Samwers' consulting agreements expire on October 18, 2011.

 Code of Ethics

     In connection with the completion of this offering, we will adopt a Code of Ethics for Principal Executive and Senior Financial
 Officers, which is applicable to our chief executive officer, chief financial

                                                                     89




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                               Page 100 of 269
groupon.htm                                                                                                                                   6/2/11 12:35 PM


 Table of Contents




 officer and other principal executive and senior financial officers. This code will become effective as of the effective date of this
 offering.

 Board of Directors

      Our board of directors currently consists of seven members. Our bylaws permit our board of directors to establish by resolution
 the authorized number of directors, and nine directors are currently authorized.

      Pursuant to our certificate of incorporation as currently in effect and a voting agreement among us and significant holders of our
 preferred stock and common stock, who together have substantial control of the total voting power of our outstanding capital stock,
 those holders vote together to cause the election of all of our directors as follows:

        •       Mr. Barris, who was elected as the designee of New Enterprise Associates;

        •       Mr. Efrusy, who was elected as the designee of Accel Growth Fund L.P.;

        •       Messrs. Leonsis and Schultz, who were elected as the designees of (i) the holders of a majority of our common stock,
                voting as a class and (ii) the holders of a majority of our preferred stock, voting as a class, which holders also have the
                right to elect one additional director pursuant to the voting agreement;

        •       Mr. Mason, who was elected as the designee of the holders of a majority of our preferred stock and common stock,
                voting together; and

        •       Messrs. Lefkofsky and Keywell, who were elected as the designees of the holders of a majority of the outstanding
                shares of our Series B preferred stock, which holders also have the right to elect one additional director pursuant to the
                voting agreement.

     Upon the closing of this offering, the voting agreement by which these directors were elected will terminate.

 Director Independence

      Under                , a majority of a listed company's board of directors must be comprised of independent directors, and each
 member of a listed company's audit, compensation and nominating and corporate governance committees must be independent as
 well. Under                , a director will only qualify as an "independent director" if that company's board of directors affirmatively
 determines that the director has no material relationship with that company, either directly or as a partner, shareholder or officer of an
 organization that has a relationship with that company.

        In addition, following the effectiveness of this registration statement, the members of our audit committee must satisfy the
 independence criteria set forth in Rule 10A-3 under the Securities Exchange Act of 1934, as amended, or Rule 10A-3. In order to be
 considered to be independent for purposes of Rule 10A-3, no member of the audit committee may, other than in his capacity as a
 member of the audit committee, the board of directors, or any other Board committee: (1) accept, directly or indirectly, any consulting,
 advisory, or other compensatory fee from the company or any of its subsidiaries; or (2) be an affiliated person of the company or any
 of its subsidiaries.

      Prior to the completion of this offering, our board of directors will undertake a review of the independence of each director and
 consider whether any director has a material relationship with us that could compromise his ability to exercise independent judgment
 in carrying out his responsibilities.

                                                                    90




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                              Page 101 of 269
groupon.htm                                                                                                                             6/2/11 12:35 PM


 Table of Contents

 Committees of the Board of Directors

     Our board of directors has established an audit committee, a compensation committee and a nominating and corporate
 governance committee, each of which has the composition and responsibilities described below.

        Audit Committee

      Our audit committee is comprised of Messrs. Efrusy, Leonsis and Schultz, each of whom is a non-employee member of our board
 of directors. Mr. Leonsis is the chairperson of our audit committee. Our board of directors has determined that each member of the
 audit committee meets the financial literacy requirements under the rules and regulations of the                  and the SEC and
 Mr. Leonsis qualifies as our audit committee financial expert under the SEC rules implementing Section 407 of the Sarbanes-Oxley
 Act of 2002. Under the audit committee charter to be effective upon the completion of this offering, our audit committee will be
 responsible for, among other things:

        •      selecting and hiring our independent auditors, and approving the audit and non-audit services to be performed by our
               independent auditors;

        •      evaluating the qualifications, performance and independence of our independent auditors;

        •      monitoring the integrity of our financial statements and our compliance with legal and regulatory requirements as they
               relate to financial statements or accounting matters;

        •      reviewing the adequacy and effectiveness of our internal control policies and procedures;

        •      discussing the scope and results of the audit with the independent auditors and reviewing with management and the
               independent auditors our interim and year-end operating results; and

        •      preparing the audit committee report that the SEC requires in our annual proxy statement.

        Compensation Committee

       Our compensation committee is currently comprised of Messrs. Barris, Efrusy, Keywell and Leonsis. Mr. Barris is the
 chairperson of our compensation committee. Under the compensation committee charter to be effective upon the completion of this
 offering, our compensation committee will be responsible for, among other things:

        •      reviewing and approving for our executive officers: the annual base salary, the annual incentive bonus, including the
               specific goals and amount, equity compensation, employment agreements, severance arrangements and change in
               control arrangements, and any other benefits, compensation or arrangements;

        •      reviewing the succession planning for our executive officers;

        •      reviewing and recommending compensation goals and bonus and stock compensation criteria for our employees;

        •      preparing the compensation committee report that the SEC requires to be included in our annual proxy statement; and

        •      administering, reviewing and making recommendations with respect to our equity compensation plans.

        Nominating and Corporate Governance Committee

      Our nominating and corporate governance committee is comprised of Messrs. Barris, Keywell and Leonsis. Mr. Keywell is the
 chairperson of our nominating and corporate governance committee. Under

                                                                 91




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                        Page 102 of 269
groupon.htm                                                                                                                           6/2/11 12:35 PM


 Table of Contents

 the nominating and corporate governance committee charter to be effective upon the completion of this offering, our nominating and
 corporate governance committee will be responsible for, among other things:

        •      assisting our board of directors in identifying prospective director nominees and recommending nominees for each
               annual meeting of stockholders to the board of directors;

        •      reviewing developments in corporate governance practices and developing and recommending governance principles
               applicable to our board of directors;

        •      overseeing the evaluation of our board of directors and management; and

        •      recommending members for each committee of our board of directors.

 Compensation Committee Interlocks and Insider Participation

     Messrs. Efrusy, Keywell and Lefkofsky served as members of the compensation committee during 2010. None of the members of
 our compensation committee, other than Mr. Lefkofsky, is or has in the past served as an officer or employee of our company. None
 of our executive officers currently serves, or in the past year has served, as a member of the board of directors or compensation
 committee of any entity that has one or more executive officers serving on our board of directors or compensation committee.

                                                                92




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                      Page 103 of 269
groupon.htm                                                                                                                                     6/2/11 12:35 PM


 Table of Contents


                                                   EXECUTIVE COMPENSATION

 Compensation Discussion and Analysis

      The following is a presentation of the material elements of the compensation arrangements of the following current and former
 executive officers, who are also identified in the "Summary Compensation Table" for 2010 (collectively, our "named executive
 officers" or "NEOs"):

        •       Andrew D. Mason, Chief Executive Officer

        •       Jason E. Child, Chief Financial Officer

        •       Robert S. Solomon, Former President and Chief Operating Officer

        •       Brian K. Totty, Senior Vice President of Engineering and Operations

        •       Kenneth M. Pelletier, Former Chief Technology Officer

      This discussion also contains forward-looking statements that are based on our current plans, considerations, expectations and
 determinations regarding future compensation programs.

 Overview

      Our business is highly competitive, and competition presents an ongoing challenge to our success. We expect competition in the
 internet business generally, and the group buying business in particular, to continue to increase because there are not substantial
 barriers to entry. Our ability to compete and succeed in this environment is directly tied to our ability to recruit, incentivize and retain
 skilled and talented individuals to form an executive team characterized by a high level of sales, marketing, operations, financial, and
 strategic acquisitions expertise. Our compensation philosophy is centered around our goal of establishing and maintaining an
 executive compensation program that attracts proven, talented leaders who possess the skills and experience necessary to materially
 add to the Company's long-term value, expansion and ability to achieve our strategic goals. To that end, our executive compensation
 program also permits us to recognize and reward individual achievements within the framework of the Company's overarching goals
 and objectives.

     Briefly, the primary goals of our executive compensation program are as follows:

        •       Recruit and retain talented and experienced individuals who are able to develop, implement and deliver on long-term
                value creation strategies;

        •       Provide a substantial portion of each executive's compensation in components that are directly tied to the long-term
                value and growth of the Company;

        •       Reward both Company and individual performance and achievement; and

        •       Ensure that our compensation is reasonable and competitive with opportunities made available to executives at
                companies with which we compete for executive talent.

 Our Compensation-Setting Process

     Historically, the initial compensation arrangements with our executive officers, including the named executive officers, have been
 the result of arm's-length negotiations between the Company and each individual executive. Prior to the formation of our
 compensation committee, the Board was primarily responsible for overseeing and approving the negotiation of these arrangements on
 behalf of the Company. We have been undergoing a period of substantial growth and development in recent years in a highly
 competitive business and technological environment, and the focus of these arrangements has been to recruit talented individuals to
 help us meet specific long-term financial and growth objectives. Individual

                                                                     93




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                                Page 104 of 269
groupon.htm                                                                                                                               6/2/11 12:35 PM


 Table of Contents




 compensation arrangements with executives have been influenced by a number of factors, including the following, each as of the time
 of the applicable hiring decision:

        •       our need to fill a particular position;

        •       our financial position and growth direction at the time of hiring;

        •       the individual's expertise and experience; and

        •       the competitive nature of the position.

      In May 2010, we formed our compensation committee. Our compensation committee is now composed entirely of independent
 directors, and is responsible for overseeing our executive compensation program and approving ongoing compensation arrangements
 for our named executive officers. Due to the relatively recent formation of our compensation committee, its members are in the
 process of formulating a comprehensive overall approach to executive compensation, and we expect that our compensation program
 in future may vary, perhaps significantly, from our historical practices.

       In February 2011, we retained a compensation consultant to review and assess our current employee compensation practices
 relative to market compensation practices. Specifically, the compensation consultant was engaged to:

        •       provide data for the establishment of a peer group of companies to serve as a basis for assessing competitive executive
                and director compensation practices going forward;

        •       review and assess our current executive compensation programs relative to market to determine any changes that may
                need to be implemented in connection with or following our initial public offering;

        •       assist in the development of salary and equity guidelines for certain technology positions; and

        •       assess current cash and equity compensation levels relative to market and compensation strategy and structure for
                executive, director and technology positions and certain other employee groups.

      The results of the compensation consultant's review and assessment were presented to the compensation committee in April 2011.
 The compensation committee resolved to take the review and assessment provided by the compensation consultant under advisement
 for further discussion and analysis at its next regular meeting.

      Our compensation committee generally expects to seek input from our chief executive officer and chief operating officer when
 discussing the performance and compensation of the other named executive officers, as well as during the process of searching for and
 negotiating compensation packages with new senior management hires. The compensation committee also expects to coordinate with
 our chief financial officer in determining the financial and accounting implications of our compensation programs and hiring
 decisions. None of our named executive officers participates in compensation committee deliberations relating to his or her own
 compensation.

 Elements of Our Compensation Program

      The four key elements of our compensation package for named executive officers are base pay, discretionary performance
 bonuses, equity-based awards, and our benefits programs. We do not use specific formulas or weightings in determining the
 allocation of the various pay elements; rather, each named executive officer's compensation has been designed to provide a
 combination of fixed and at-risk compensation that is tied to achievement of the Company's short- and long-term objectives.

     Base Salary. We offer reasonable base salaries that are intended to provide a level of stable fixed compensation to executives
 for performance of day-to-day services. Each named executive officer's base salary was established as the result of arm's-length
 negotiation with the individual, and is generally

                                                                    94




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                          Page 105 of 269
groupon.htm                                                                                                                                                   6/2/11 12:35 PM


 Table of Contents




 reviewed annually to determine whether an adjustment is warranted or required. The base salaries paid to our named executive
 officers in 2010 are set forth in the "Summary Compensation Table" below. The following table sets forth the base salary rates in
 effect for 2010:

                            Name                                                        2010 Base Salary Rate ($)
                            Andrew D. Mason                                                              180,000 (1)
                            Jason E. Child                                                               350,000
                            Robert S. Solomon                                                            350,000
                            Brian K. Totty                                                               250,000
                            Kenneth M. Pelletier                                                         185,000

                            (1)    At his own recommendation to the compensation committee, Mr. Mason's base salary for 2011 was reduced to $575, effective
                                   January 1, 2011.


      Discretionary Performance Bonus. We offer our named executive officers the opportunity to earn annual performance bonuses,
 which are determined by the Board or the compensation committee at its sole discretion, based on each officer's job performance and
 the Company's financial performance. As a privately-held company, we believe that a discretionary cash bonus program has allowed
 the Board and compensation committee to retain flexibility to conserve cash while rewarding results as determined to be appropriate.
 Because of the rapidly-changing nature of our business, the Board and compensation committee have not believed that selecting pre-
 set performance metrics would enhance incentive efforts, and instead have focused on using equity incentives to encourage company-
 wide improvements. No discretionary bonuses were awarded to any named executive officers for 2010 performance.

      Equity-Based Awards. Our practice, as a private and rapidly growing company, has been to grant equity awards to our newly
 hired executive officers, in order to effectively align the interests of the executive with our long-term growth objectives. As such, we
 have not generally made regular equity awards to our named executive officers, although we anticipate that annual equity awards may
 form a component of our compensation structure for executives going forward, in order to more effectively align the interests of
 executive officers and our stockholders and ensure appropriate long-term incentives remain in place. The sizes and types of awards
 that have historically been granted to newly hired executive officers have not been determined based on a specific formula, but rather
 on a combination of the Board's or compensation committee's discretionary judgment regarding the appropriate level of compensation
 for the position, the need to fill a particular position, and the negotiation process with the particular individual involved.

      Benefits Programs. Our employee benefit programs, including our 401(k) plan and health, dental, vision and short-term
 disability coverage programs, are designed to provide a stable array of support to our employees generally, including our named
 executive officers, and their families.

 Post-Employment Compensation

      The terms and conditions of employment for Messrs. Mason, Child and Totty are set forth in their employment agreements. Prior
 to his departure from the position of President and Chief Operating Officer, the terms and conditions of employment for Mr. Solomon
 were also set forth in his employment agreement. The material terms of these agreements are summarized under "Employment
 Agreements" below. These employment agreements also provide for certain benefits in the event of the named executive officer's
 termination of employment under specified circumstances or upon a change in control. We believe that our extension of these post-
 employment and change in control benefits was necessary in order to induce these individuals to forego other competitive
 opportunities that were available to them. The material terms of these post-employment arrangements, including the terms of
 Mr. Solomon's separation agreement and Mr. Pelletier's separation agreement, are set forth in "Potential Payments Upon Termination
 or Change in Control" below. Prior to his departure from the Company, Mr. Pelletier had not entered into any formal employment
 agreement or post-employment compensation arrangement with us.

                                                                        95




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                                              Page 106 of 269
groupon.htm                                                                                                                                     6/2/11 12:35 PM


 Table of Contents

 Effect of Accounting and Tax Treatment on Compensation Decisions

     Accounting Treatment. We recognize a charge to earnings for accounting purposes for equity awards over their vesting period.
 When we become a publicly-held company, we expect that our compensation committee will continue to review and consider the
 accounting impact of equity awards in addition to considering the impact for dilution and overhang when deciding on amounts and
 terms of equity grants.

         Deductibility of Executive Compensation. After the end of a transition period following our initial public offering,
 Section 162(m) of the Internal Revenue Code of 1986, as amended, or the Code, will limit the amount that we may deduct from our
 federal income taxes for compensation paid to our executive officers to $1 million dollars per executive officer per year, unless
 certain requirements are met. Section 162(m) provides an exception from this deduction limit for certain forms of performance-based
 compensation. While our compensation committee is mindful of the benefit to us of the full deductibility of compensation, the Board
 and the compensation committee believe that we should not be constrained by the requirements of the Section 162(m) exception where
 those requirements would impair our flexibility in compensating our executive officers in a manner that can best promote our
 corporate objectives. Therefore, the Board and the compensation committee have not adopted a policy that would require that all
 compensation be deductible. We intend to continue to compensate our executive officers in a manner consistent with the best interests
 of the Company and our stockholders.

         Taxation of Parachute Payments and Deferred Compensation. We do not provide and have no obligation to provide any
 executive officer, including any named executive officer, with a "gross-up" or other reimbursement payment for any tax liability that
 he or she might owe as a result of the application of Section 280G, 4999, or 409A of the Code. Sections 280G and 4999 of the Code
 provide that executive officers and directors who hold significant equity interests and certain other service providers may be subject to
 an excise tax if they receive payments or benefits in connection with a change in control that exceed certain limits prescribed by the
 Code, and that the employer may forfeit a deduction on the amounts subject to this additional tax. Our 2010 Plan permits a participant
 to elect, in his or her discretion, to reduce a payment or acceleration of vesting under the plan to the extent necessary to avoid the
 imposition of an excise tax under Sections 280G and 4999. Section 409A of the Code also may impose significant taxes on a service
 provider in the event that he or she receives deferred compensation that does not comply with the requirements of Section 409A. We
 have structured our compensation arrangements with the intention of complying with or otherwise being exempt from the
 requirements of Section 409A. Further, our 2010 Plan provides that the Board may amend the terms of the plan or any award
 agreement to the extent necessary to comply with or effectuate an exemption from the requirements of Section 409A.

 Hiring of New Chief Operating Officer

      On April 15, 2011, we hired Margaret H. Georgiadis to serve as our new Chief Operating Officer. Pursuant to the terms of her
 employment agreement, which expires December 15, 2015, Ms. Georgiadis receives a base salary of $500,000 per year. She is also
 eligible to receive a discretionary annual bonus not to exceed 100% of her base salary and to participate in our employee and
 executive benefit plans (the costs of which will be reimbursed by the Company). In connection with her hiring, Ms. Georgiadis was
 granted 1,100,000 restricted stock units under 2010 Plan, 300,000 of which were immediately vested. With respect to the remaining
 restricted stock units, 12/56 of them will vest on April 15, 2012, 3 /56 of them will vest at the end of each of the next fourteen three-
 month periods thereafter, and a final 2 /56 of them will vest at the end of the 56th month following the date of hire. Vesting is subject to
 Ms. Georgiadis' continued employment through each vesting date.

        If Ms. Georgiadis' employment is terminated without cause or for good reason, she will be entitled to receive (i) continued
 payment of base salary for twelve months following termination, (ii) a lump sum payment of 100% of her annual bonus target,
 (iii) continued company-paid medical and insurance benefits for up to twelve months following termination, and (iv) immediate
 vesting of the sum of 171,249 restricted

                                                                     96




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                                Page 107 of 269
groupon.htm                                                                                                                                                              6/2/11 12:35 PM


 Table of Contents




 stock units plus the positive difference between (x) the number of restricted stock units that would have vested through her
 termination (excluding the immediately vested units), had the vesting been determined at the rate of 1 /56 of the total per month, and
 (y) the number of restricted units that would have vested in accordance with her employment agreement. If the foregoing termination
 occurs within six months prior to or twelve months following a change in control, Ms. Georgiadis will also be entitled to immediate
 vesting of her unvested restricted stock units and any other equity awards granted to her during her employment. Her right to these
 benefits is contingent on her execution of a release of claims against the Company.

 Summary Compensation Table

      The following table sets forth information regarding the compensation of the individuals who served as our named executive
 officers during 2010.

                                                                                       Option          Stock          All Other           Total
                                                         Salary         Bonus          Awards         Awards        Compensation       Compensation
              Name and Principal Position (1) Year        ($)           ($) (2)        ($) (3)        ($) (4)          ($) (5)             ($)
              Andrew D. Mason                  2010 180,000 (6)               —                  —              —          4,599           184,599
                Chief Executive Officer
              Jason E. Child(7)                2010        5,384      375,000                    —   9,477,000                   140     9,857,524
                Chief Financial Officer
              Robert S. Solomon(8)             2010 263,846                   — 5,068,785                       —          2,160         5,334,791
                Former President and
                Chief Operating
                Officer
              Brian K. Totty                   2010       20,833              —                  —   2,659,334                    —      2,680,167
                Senior Vice President
                of Engineering and
                Operations
              Kenneth M. Pelletier (9)         2010 185,000                   —                  —              —          7,838           192,838
                Former Chief
                Technology Officer

              (1)     Eric P. Lefkofsky, our Co-Founder and Executive Chairman of the Board, is not an employee of the Company and receives no compensation
                      for his service as an executive officer. Therefore he is not included in the compensation tables or "Compensation Discussion and Analysis".
                      Mr. Lefkofsky's compensation for his service as a non-employee director is disclosed in "Director Compensation in 2010" below.

              (2)     There were no discretionary performance bonuses paid to any of our named executive officers for 2010. Mr. Child received a one-time signing
                      bonus in connection with the execution of his employment agreement, effective December 20, 2010.

              (3)     Amounts disclosed in this column relate to grants of stock options made under the 2010 Plan. With respect to each stock option grant, the
                      amounts disclosed generally reflect the grant date fair value computed in accordance with FASB ASC Topic 718 "Stock Compensation". The
                      exercise price of stock options is equal to the fair market value of the underlying stock on the grant date, determined in good faith by the
                      Board and in a manner consistent with Section 409A of the Code. Grant date fair value was determined using a generally accepted option
                      valuation methodology referred to as the Black-Scholes-Merton option pricing model. Information regarding assumptions used in calculating
                      the value of stock option awards made to executive officers is provided in "Management's Discussion and Analysis of Financial Condition and
                      Results of Operations" above.

              (4)     Amounts disclosed in this column relate to grants of restricted stock units made under the 2010 Plan. With respect to each restricted stock unit
                      grant, the amounts disclosed generally reflect the grant date fair value computed in accordance with FASB ASC Topic 718. Grant date fair
                      value for each restricted stock unit award was determined in good faith by the Board without regard to lapsing restrictions and in a manner
                      consistent with Section 409A of the Code.

              (5)     Amounts disclosed in this column relate to amounts paid to reimburse our named executive officers for the cost of participation in our group
                      health and dental plans and for parking costs at the Company's headquarters in Chicago, Illinois.

              (6)     At his own recommendation to the compensation committee, Mr. Mason's base salary rate for 2011 was reduced to $575, effective January 1,
                      2011.

              (7)     Mr. Child was appointed as our Chief Financial Officer on December 20, 2010. Prior to his appointment, no single individual served in the
                      capacity of or performed the functions of chief financial officer of the Company.

              (8)     Mr. Solomon ceased to be our President and Chief Operating Officer on March 22, 2011.

              (9)     Mr. Pelletier's employment with us terminated on March 23, 2011.


                                                                                  97




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                                                         Page 108 of 269
groupon.htm                                                                                                                                    6/2/11 12:35 PM


 Table of Contents

 Employment Agreements

      Overview. We have entered into employment agreements with each of Messrs. Mason, Child and Totty. Prior to his departure
 from the position of President and Chief Operating Officer, we had entered into an employment agreement with Mr. Solomon. Prior
 to his separation, Mr. Pelletier did not have a formal employment agreement with the Company.

       Andrew D. Mason. We entered into an employment agreement with Mr. Mason to serve as our Chief Executive Officer
 effective November 1, 2009, which replaced his prior employment agreement. His current agreement expires on December 1, 2014.
 Pursuant to his agreement, Mr. Mason is to be paid a base salary of $180,000 annually, which amount is to be increased by at least
 fifteen percent per year thereafter. Notwithstanding this provision of his employment agreement, Mr. Mason's base salary for 2011
 has been reduced to $575, upon his own recommendation to the compensation committee. He is also eligible to receive an annual
 performance bonus of up to fifty percent of his base salary, which is payable as determined by the Board and the compensation
 committee in their sole discretion based on Mr. Mason's job performance, our financial performance, and certain performance targets
 that may be approved by the Board and the compensation committee. Notwithstanding this provision of his employment agreement,
 Mr. Mason's bonus has been eliminated as a component of his 2011 compensation, upon his own recommendation to the
 compensation committee. Mr. Mason is also entitled to participate in our executive and employee benefit plans on the same basis as
 other members of our senior management, and is reimbursed by us for the costs of those plans in which he elects to participate. In
 connection with the execution of his employment agreement, Mr. Mason purchased 1,800,000 shares of our Class A common stock
 on November 1, 2009 at their then current fair market value with a promissory note. In April 2011, Mr. Mason repaid the promissory
 note with respect to 1,650,000 shares and forfeited 150,000 shares. In connection with the repayment of the promissory note and
 forfeiture of the shares, the remaining balance of the promissory note was cancelled. These shares are subject to our right to
 repurchase upon a termination of Mr. Mason's employment for any reason prior to November 1, 2014, at a purchase price of their fair
 market value on the repurchase date. The repurchase right lapses with respect to twenty percent of the underlying shares for every
 year in which Mr. Mason continues to be employed commencing on November 1, 2009. Mr. Mason is also entitled to receive certain
 benefits upon certain terminations of employment, which benefits are summarized below in "Potential Payments Upon Termination or
 Change in Control."

      Jason E. Child. We entered into an employment agreement with Mr. Child to serve as our Chief Financial Officer effective
 December 20, 2010, which was amended and restated effective April 29, 2011, and expires on December 20, 2015. Pursuant to his
 amended and restated employment agreement, Mr. Child is paid a base salary of $350,000 annually. Mr. Child is also eligible to
 receive an annual performance bonus of at least $350,000, determined by the Board and the compensation committee, payable semi-
 annually on June 20th and December 20th of each year. Mr. Child is entitled to participate in our executive and employee benefit plans
 on the same basis as other members of our senior management, and is reimbursed by us for the costs of those plans in which he elects
 to participate. In connection with the execution of his employment agreement in December 2010, Mr. Child received a one-time
 signing bonus of $375,000, and an award of 600,000 restricted stock units under our 2010 Plan. We granted Mr. Child an additional
 50,000 restricted stock units on April 29, 2011 in connection with the execution of his amended and restated employment agreement.
 No restricted stock units will vest until the earliest of (i) December 20, 2011, (ii) six months after the effective date of our initial
 public offering, or (iii) a change in control. On the first of the foregoing events to occur, 130,000 restricted stock units will vest, and
 on the last day of each subsequent three-month period, 32,500 additional restricted stock units will vest. No restricted stock units will
 vest if Mr. Child has not been continuously employed by us up to and including the applicable vesting date. Mr. Child is also entitled
 to receive certain benefits upon certain terminations of employment and a change in control, which benefits are summarized below in
 "Potential Payments Upon Termination or Change in Control."

                                                                     98




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                               Page 109 of 269
groupon.htm                                                                                                                                                    6/2/11 12:35 PM


 Table of Contents

      Rob S. Solomon. Mr. Solomon ceased to hold the position of President and Chief Operating Officer of the Company on
 March 22, 2011. Prior to that date, we had entered into an employment agreement with Mr. Solomon to serve as our President and
 Chief Operating Officer effective March 15, 2010. Pursuant to his agreement, Mr. Solomon was paid a base salary of $350,000
 annually. He was also eligible to receive an annual performance bonus of up to thirty-three percent of his base salary, which was
 payable as determined by the Board and the compensation committee in their sole discretion based on Mr. Solomon's job performance,
 our financial performance, and certain performance targets approved by the Board. Mr. Solomon was also entitled to participate in our
 executive and employee benefit plans on the same basis as other members of our senior management, and was reimbursed by us for
 the costs of those plans in which he elected to participate. In connection with the execution of his employment agreement,
 Mr. Solomon received an award of options to purchase 4,110,000 shares of our Class A common stock under our 2010 Plan,
 1,027,500 of which vested on March 22, 2011, with the remaining options to vest in approximately equal increments each quarter
 thereafter beginning on June 22, 2011. Mr. Solomon entered into a transition services and separation agreement with us on April 5,
 2011, pursuant to which he receives certain benefits throughout a specified transition period and following his termination, which
 benefits are summarized below in "Potential Payments Upon Termination or Change in Control."

      Brian K. Totty. We entered into an employment agreement with Mr. Totty to serve as our Senior Vice President of Engineering
 and Operations, effective November 30, 2010. His agreement does not have a specified term. Pursuant to his agreement, Mr. Totty is
 paid a base salary of $250,000 annually. Mr. Totty is also eligible to participate in those fringe benefit plans generally available to
 our employees. In connection with the execution of his employment agreement, Mr. Totty received an award of 197,280 restricted
 stock units under our 2010 Plan, which vest in equal increments over thirty-six months beginning December 30, 2010. No restricted
 stock units will vest if Mr. Totty has not been continuously employed by us up to and including the applicable vesting date. If, as of
 November 30, 2012, there has not been a change in control, an initial public offering, or a bona fide third party offer to purchase
 Mr. Totty's shares of Class A common stock, Mr. Totty will have a one-time right to require us to purchase his shares of Company
 capital stock at their then current fair market value, up to an aggregate value of $2,000,000, which right shall expire after 60 days.
 This right will terminate automatically if Mr. Totty voluntarily terminates employment (other than following a demotion) at any time
 prior to November 30, 2012. Mr. Totty is also entitled to receive certain benefits upon certain terminations of employment and a
 change in control, which benefits are summarized below in "Potential Payments Upon Termination or Change in Control."

 Grants of Plan-Based Awards in 2010

      The following table sets forth information regarding grants of awards made to our named executive officers during 2010. These
 amounts have been adjusted to reflect a three-for-one stock split completed in August 2010, and a two-for-one stock split completed
 in January 2011.

                                                                                                                             Grant Date
                                                                    Number of                                                Fair Value
                                                                     Securities         Number of           Exercise          of Stock
                                                                    Underlying           Securities         Price of         and Option
                                                                  Restricted Stock      Underlying          Option             Awards
              Name                             Grant Date            Units (#)          Options (#)       Awards ($/sh)         ($) (1)
              Andrew D. Mason                           —                      —                —                     —              —
              Jason E. Child                    12/20/2010                600,000 (2)           —                     —       9,477,000
              Robert S. Solomon                  3/22/2010                     —           155,424 (3)              2.57        191,684
                                                 3/22/2010                     —         3,954,576(4)               2.57      4,877,179
              Brian K. Totty                    11/30/2010                197,280 (5)           —                     —       2,659,334
              Kenneth M. Pelletier                      —                      —                —                     —              —

              (1)     Reflects grant date fair value of restricted stock units and option awards computed in accordance with FASB ASC Topic 718. Assumptions
                      underlying the valuations are set forth in footnotes 2 and 3 to the Summary Compensation Table above.


                                                                           99




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                                               Page 110 of 269
groupon.htm                                                                                                                                                             6/2/11 12:35 PM


 Table of Contents

              (2)    Reflects the award of restricted stock units under the 2010 Plan upon Mr. Child's employment as Chief Financial Officer, pursuant to his
                     entering into an employment agreement with us.

              (3)    Reflects the award of incentive stock options under the 2010 Plan upon Mr. Solomon's employment as President and Chief Operating Officer,
                     pursuant to his entering into an employment agreement with us.

              (4)    Reflects the award of nonqualified statutory stock options under the 2010 Plan upon Mr. Solomon's employment as President and Chief
                     Operating Officer, pursuant to his entering into an employment agreement with us.

              (5)    Reflects the award of restricted stock units under the 2010 Plan upon Mr. Totty's employment as Senior Vice President of Engineering and
                     Operations, pursuant to his entering into an employment agreement with us.


 Outstanding Equity Awards at 2010 Year-End

      The following table lists all outstanding equity awards held by our named executive officers as of December 31, 2010. These
 amounts have been adjusted to reflect a three-for-one stock split completed in August 2010, and a two-for-one stock split completed
 in January 2011.

                                                            Option Awards                                             Stock Awards
                                     Number of           Number of                                                             Market Value
                                      Securities          Securities                                          Number of          of Shares
                                     Underlying          Underlying      Option                             Shares of Stock       of Stock
                                     Unexercised         Unexercised    Exercise            Option          that Have Not        that Have
                                     Options (#)         Options (#)      Price            Expiration           Vested          Not Vested
              Name                   Exercisable        Unexercisable      ($)               Date                 (#)                ($)
              Andrew D.
                Mason                            —                   —             —                 —                   —                   —
              Jason E. Child                     —                   —             —                 —              600,000 (1)       9,477,000
              Robert S.
                Solomon                          —          4,110,000(2)         2.57      3/22/2020                     —                   —
              Brian K. Totty                     —                 —               —              —                 191,800 (3)       3,029,481
              Kenneth M.
                Pelletier                        —             45,000(4)         0.02       9/1/2017                       —                   —
                                                 —            143,750 (5)        0.02      11/7/2018                       —                   —
                                                 —            387,500 (6)        0.16       7/9/2019                       —                   —

              (1)    Restricted stock units vest according to the following schedule: 120,000 on the earliest of (i) December 20, 2011, (ii) six months after the
                     effective date of our initial public offering, or (iii) a change in control event; and an additional 30,000 on the last day of each subsequent
                     three-month period following the initial vesting event. Vesting is subject to Mr. Child's continued employment by the Company up to and
                     including each applicable vesting date.

              (2)    Stock options would have vested according to the following schedule: 1,027,500 on March 22, 2011; an additional 256,878 on June 22, 2011
                     and on each monthly anniversary of such date thereafter through December 22, 2011; and an additional 256,842 on March 22, 2014. Vesting
                     of certain of Mr. Solomon's stock options was accelerated pursuant to his separation agreement, as described below in "Mr. Solomon's
                     Transition Services and Separation Agreement."

              (3)    Restricted stock units vest according to the following schedule: 5,480 on December 31, 2010 and on each monthly anniversary of such date
                     thereafter. Vesting is subject to Mr. Totty's continued employment by us up to and including each applicable vesting date.

              (4)    Stock options would have vested according to the following schedule: 5,000 on January 1, 2011 and on each monthly anniversary of such date
                     thereafter. Vesting of certain of Mr. Pelletier's stock options was accelerated pursuant to his separation agreement, as described below in
                     "Mr. Pelletier's Separation Agreement."

              (5)    Stock options would have vested according to the following schedule: 6,250 on January 7, 2011 and on each monthly anniversary of such date
                     thereafter. Vesting of certain of Mr. Pelletier's stock options was accelerated pursuant to his separation agreement, as described below in
                     "Mr. Pelletier's Separation Agreement."

              (6)    Stock options would have vested according to the following schedule: 12,500 on January 9, 2011 and on each monthly anniversary of such
                     date thereafter. Vesting of certain of Mr. Pelletier's stock options was accelerated pursuant to his separation agreement, as described below in
                     "Mr. Pelletier's Separation Agreement."


                                                                             100




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                                                        Page 111 of 269
groupon.htm                                                                                                                                                            6/2/11 12:35 PM


 Table of Contents

 Option Exercises and Stock Vested in 2010

     The following table sets forth all exercises of stock options by our named executive officers during 2010. These amounts have
 been adjusted to reflect a three-for-one stock split completed in August 2010, and a two-for-one stock split completed in January
 2011.

                                                             Option Awards                                          Stock Awards
                                                  Number of Shares
                                                    Acquired on       Value Realized on               Number of Shares           Value Realized
                                                     Exercise              Exercise                  Acquired on Vesting          on Vesting
              Name                                      (#)                 ($) (1)                          (#)                     ($) (2)
              Andrew D. Mason                                     —                        —                            —                    —
              Jason E. Child                                      —                        —                            —                    —
              Robert S. Solomon                                   —                        —                            —                    —
              Brian K. Totty                                      —                        —                         5,480 (3)           86,584
              Kenneth M. Pelletier                           544,998                2,424,762                           —                    —

              (1)    The value realized on exercise is the difference between the fair market value of the underlying stock at the time of exercise and the exercise
                     price of the option.

              (2)    The value realized on vesting is the fair market value of the underlying stock on the vesting date.

              (3)    Consists of shares settled upon the vesting of restricted stock units awarded on November 30, 2010.


 Pension Benefits

      Aside from our 401(k) plan, we do not maintain any pension plan or arrangement under which our named executive officers are
 entitled to participate or receive post-retirement benefits.

 Non-Qualified Deferred Compensation

      We do not maintain any nonqualified deferred compensation plans or arrangements under which our named executive officers are
 entitled to participate.

                                                                             101




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                                                       Page 112 of 269
groupon.htm                                                                                                                              6/2/11 12:35 PM


 Table of Contents

 Potential Payments Upon Termination or Change in Control

      Potential Payments pursuant to Mr. Mason's Employment Agreement. Upon a termination of employment by us without cause
 or by Mr. Mason for good reason, Mr. Mason is entitled to receive, for a period of 180 days following termination, (i) continued
 payment of his base salary, less applicable withholding, and (ii) continuation of his then-current benefits under our benefit plans.
 Mr. Mason is also subject to non-competition and non-solicitation restrictive covenants for a period of two years following a
 termination of employment for any reason.

     "Cause" is defined in Mr. Mason's employment agreement as:

        •       failure to perform reasonable legally assigned duties following written notice of such failure and a reasonable
                opportunity to cure;

        •       theft, dishonesty, or falsification of employment or Company records;

        •       an act or acts constituting a felony or involving moral turpitude;

        •       willful misconduct or gross negligence that has had a material adverse effect on our reputation or business; or

        •       material breach of the employment agreement following written notice of such breach and reasonable opportunity to
                cure.

     "Good reason" is defined in Mr. Mason's employment agreement as:

        •       material reduction of duties and responsibilities below what is customary for his position, without Mr. Mason's
                consent;

        •       office relocation more than twenty-five miles from our current office, without Mr. Mason's consent; or

        •       our breach of the employment agreement which has continued for more than thirty days following notice to us of such
                breach.

     "Change in control" is defined in Mr. Mason's employment agreement by reference to our 2008 Plan, which is described below
 under "2008 Stock Option Plan."

       Potential Payments pursuant to Mr. Child's Employment Agreement. Upon a termination of employment by us without cause or
 by Mr. Child for good reason, Mr. Child is entitled to receive immediate vesting of 110,000 unvested restricted stock units (from his
 original grant of 600,000 restricted stock units) and, for a period of six months following termination, (i) continued payment of his
 base salary, less applicable withholding, and (ii) continuation of Company-provided insurance benefits until he has secured insurance
 benefits elsewhere. Upon a change in control, Mr. Child is entitled to immediate vesting of fifty percent of his then unvested
 restricted stock units. However, in the event of a change of control that occurs on or before December 20, 2011, Mr. Child has the
 option to elect, in lieu of such immediate vesting, to receive a contractual commitment from us to pay him $2,650,000 annually,
 payable on a quarterly basis over the next five years, contingent on Mr. Child's remaining employed by us on each payment date. If
 Mr. Child makes such an election, and his employment is terminated by us without cause or by Mr. Child for good reason during the
 period beginning three months prior to the public announcement of a change in control and ending twelve months following a change
 in control, Mr. Child shall be entitled to receive a lump sum payment of the amount he would have received had he remained
 employed by us for an additional thirty-six months, payable in a lump sum. Mr. Child is also subject to non-competition and non-
 solicitation restrictive covenants for a period of six months following a termination of employment for any reason.

                                                                   102




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                         Page 113 of 269
groupon.htm                                                                                                                                6/2/11 12:35 PM


 Table of Contents

     "Cause" is defined in Mr. Child's employment agreement as:

        •       theft, material dishonesty, or falsification of employment or Company records;

        •       an act or acts constituting a felony; or

        •       willful misconduct or gross negligence that has had a material adverse effect on our reputation or business.

     "Good reason" is defined in Mr. Child's employment agreement as:

        •       material reduction of duties and responsibilities below what is customary for his position, without Mr. Child's consent;

        •       a change in title;

        •       our requirement that he report to anyone other than the chief executive officer;

        •       office relocation more than fifty miles from our current office, without Mr. Child's consent;

        •       material reduction of his base salary or minimum annual bonus, without a corresponding similar reduction to the base
                salaries or annual bonuses of other executive officers; or

        •       our material breach of the employment agreement which has continued for more than thirty days following notice to us
                of such breach.

     "Change in control" is defined in Mr. Child's employment agreement by reference to our 2010 Plan, which is described below
 under "2010 Stock Plan."

      Potential Payments pursuant to Mr. Solomon's Employment Agreement. Upon a termination of employment by us without cause
 or by Mr. Solomon for good reason, Mr. Solomon was entitled to receive, for a period of six months following termination,
 (i) continued payment of his base salary, less applicable withholding, (ii) continuation of Company-provided insurance benefits until
 he has secured insurance benefits elsewhere, and (iii) immediate vesting of 900,000 options. If such a termination had occurred during
 the period beginning three months prior to the public announcement of a change in control and ending twelve months following a
 change in control, Mr. Solomon also would have been entitled to immediate vesting of the options that would have vested over the
 next two years. Mr. Solomon is also subject to non-competition and non-solicitation restrictive covenants for a period of two years
 following a termination of employment for any reason.

     "Cause" is defined in Mr. Solomon's employment agreement as:

        •       failure to perform reasonably assigned duties following written notice of such failure and a thirty-day cure period;

        •       theft, dishonesty, or falsification of employment or Company records;

        •       an act or acts constituting a felony or involving moral turpitude;

        •       willful misconduct or gross negligence that has had a material adverse effect on our reputation or business; or

        •       material breach of the employment agreement following written notice of such breach and a thirty-day cure period.

     "Good reason" is defined in Mr. Solomon's employment agreement as:

        •       material reduction of duties and responsibilities below what is customary for his position, without Mr. Solomon's
                consent;

                                                                   103




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                           Page 114 of 269
groupon.htm                                                                                                                                    6/2/11 12:35 PM


 Table of Contents

        •       office relocation more than one hundred miles from our current office, without Mr. Solomon's consent; or

        •       our breach of the employment agreement which has continued for more than thirty days following notice to us of such
                breach.

      "Change in control" is defined in Mr. Solomon's employment agreement by reference to the Company's 2010 Plan, which is
 described below under "2010 Stock Plan."

        Mr. Solomon's Transition Services and Separation Agreement. Upon his departure from the position of President and Chief
 Operating Officer on March 22, 2011, Mr. Solomon entered into a transition services and separation agreement with us on April 5,
 2011. Pursuant to this agreement, he is required to perform certain transitional duties during the transition period, which ends on
 July 25, 2011 (the "Separation Date"). During the transition period, Mr. Solomon will continue to receive his former base salary and
 be eligible to participate in our employee benefit plans. In addition, the vesting of 900,000 options was accelerated as of March 22,
 2011, and Mr. Solomon will be permitted to exercise his vested options for a period of ninety days following the Separation Date.
 Following the Separation Date, and provided that Mr. Solomon executes a release of claims, Mr. Solomon is entitled to receive
 (i) continued payment of his base salary, less applicable withholding, for a period of six months following termination, (ii) immediate
 vesting of an additional 416,556 options, and (iii) continued group health insurance benefits through July 31, 2011 and Company-paid
 COBRA premiums thereafter through January 31, 2012. However, if Mr. Solomon is terminated for cause during the transition period,
 he will not be eligible to receive any post-employment benefits under this agreement. Mr. Solomon is also subject to non-competition
 and non-solicitation restrictive covenants for a period of two years following his termination of employment.

     "Cause" is defined in Mr. Solomon's separation agreement as:

        •       theft, dishonesty, or falsification of employment or Company records;

        •       an act or acts constituting a felony or involving moral turpitude;

        •       willful misconduct or gross negligence that has had a material adverse effect on our reputation or business; or

        •       material breach of the separation agreement following written notice of such breach and a thirty-day cure period.

       Potential Payments pursuant to Mr. Totty's Employment Agreement. Upon a termination of employment by us without cause or
 a demotion, in each case, that occurs before November 30, 2012, Mr. Totty is entitled to receive immediate vesting of fifty percent of
 his then unvested restricted stock units. Mr. Totty is also subject to a non-solicitation restrictive covenant for a period of one year
 following a termination of employment for any reason. Upon a change in control, Mr. Totty is entitled to receive immediate vesting of
 fifty percent of his restricted stock units, to the extent they have not already vested in accordance with their terms. In addition, upon a
 change in control that is agreed to prior to November 30, 2011, Mr. Totty is entitled to receive:

        •       a cash amount equal to the positive difference, if any, between (i) $4,575,000, and (ii) the value of 307,500 shares of
                our stock (as of the date of the change in control); and

        •       one-third of the "retention shortfall", which is determined by subtracting (i) the value of 600,000 restricted stock units
                (as of the date of the change in control), from (ii) the difference between $38,300,000 and the sum of the (x) the value
                of 1,230,000 shares (as of the date of the change in control) and (y) four times the amount described in the first bullet
                point above. Mr. Totty's share of the retention shortfall is subject to vesting in equal monthly increments over the three
                year period commencing on November 30, 2010, provided that Mr. Totty has been continuously employed by us on
                each applicable vesting date. In the event that Mr. Totty experiences a demotion or is terminated

                                                                    104




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                               Page 115 of 269
groupon.htm                                                                                                                                       6/2/11 12:35 PM


 Table of Contents

                 without cause prior to the full vesting of his share of the retention shortfall, his entire share shall be immediately
                 vested. All amounts above have been adjusted to reflect the January 2011 stock split.

     "Cause" is defined in Mr. Totty's employment agreement as:

         •       conviction of or plea of nolo contendere to any felony or other crime involving fraud, theft or moral turpitude;

         •       fraud, theft, embezzlement, or other material dishonesty involving the Company or a material breach of his fiduciary
                 duty to the Company;

         •       gross negligence or willful misconduct in the performance of his employment duties to the extent such gross
                 negligence or willful misconduct materially and adversely affects the Company; or

         •       material breach of his employment agreement, which is not curable or is not cured within fifteen days following notice
                 by us to Mr. Totty specifying the nature of such breach.

     A "demotion" is defined in Mr. Totty's employment agreement as:

         •       material reduction in his duties and responsibilities or a permanent change in his duties and responsibilities which is
                 materially inconsistent with the duties and responsibilities of his position, which reduction or change is not cured
                 within thirty days following notice by Mr. Totty to us thereof.

        "Change in control" is defined in Mr. Totty's employment agreement as (i) the acquisition by any person or entity of the
 beneficial ownership of more than fifty percent of the then outstanding shares of our common stock or the combined voting power of
 the then outstanding securities entitled to vote in the election of directors; (ii) the closing of a sale or other conveyance of substantially
 all of the Company's assets; (iii) the consummation of any merger or other business combination involving the Company if,
 immediately after such transaction, the holders of a majority of the outstanding securities entitled to vote in the election of directors of
 the surviving entity of such transaction are not persons or entities who, immediately prior to such transaction, held such securities; or
 (iv) the completion of any other transaction that has the same effect as any of the foregoing.

       Mr. Pelletier's Separation Agreement. Upon his separation from the Company on March 23, 2011, Mr. Pelletier entered into a
 separation agreement and general release with us on April 6, 2011. Pursuant to this agreement, Mr. Pelletier is entitled to
 (i) continued payment of his base salary, less applicable withholding, for a period of six months following termination, and
 (ii) immediate vesting of fifty percent of his unvested stock options, which remained exercisable for thirty days following termination.

      The table below shows the estimated amount of payments and benefits that we would provide to our named executive officers
 assuming that their employment was terminated as of December 31, 2010 by us without cause or by the officer for good reason,
 including in connection with a change in control. None of our named executive officers were retirement eligible as of December 31,
 2010. The table below also shows

                                                                     105




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                                  Page 116 of 269
groupon.htm                                                                                                                                                       6/2/11 12:35 PM


 Table of Contents



 the estimated amount of payments and benefits that we would provide to our named executive officers assuming a change of control
 as of December 31, 2010.

                                                                                                                             Termination
                                                                                        Termination Without Cause or        Without Cause
                                                                     Change in         for Good Reason in Connection         or for Good
              Executive                 Payment Elements             Control ($)         with a Change in Control ($)         Reason ($)
              Andrew D.
                Mason              Salary                                      —                                88,767               88,767
                                   Stock Options                               —                                    —                    —
                                   Restricted Stock Units                      —                                    —                    —
                                   Restricted Stock                            —                                    —                    —
                                   Health Coverage                             —                                 5,400                5,400
                                     Total                                     —                                94,167               94,167

              Jason E. Child       Salary                                    —                                175,000              175,000
                                   Stock Options                             —                                     —                    —
                                   Restricted Stock Units             4,738,500                             4,738,500                   —
                                   Restricted Stock                          —                                     —                    —
                                   Health Coverage                           —                                  5,400                5,400
                                     Total                            4,738,500                             4,918,900              180,400

              Robert S.
                Solomon            Salary                                      —                              175,000             175,000
                                   Stock Options                               —                           49,271,668          11,902,500
                                   Restricted Stock Units                      —                                   —                   —
                                   Restricted Stock                            —                                   —                   —
                                   Health Coverage                             —                                5,400               5,400
                                     Total                                     —                           49,452,068          12,082,900

              Brian K. Totty       Salary                                    —                                     —                    —
                                   Stock Options                             —                                     —                    —
                                   Restricted Stock Units             1,558,019                             1,558,019(1)         1,514,741(1)
                                   Restricted Stock                          —                                     —                    —
                                   Health Coverage                           —                                     —                    —
                                   Additional Payments                3,131,685(2)                          3,131,685(2)                —
                                     Total                            4,689,704                             4,689,704            1,514,741

              Kenneth M.
                Pelletier          Salary                                      —                                     —                    —
                                   Stock Options                               —                                     —                    —
                                   Restricted Stock Units                      —                                     —                    —
                                   Restricted Stock                            —                                     —                    —
                                   Health Coverage                             —                                     —                    —
                                     Total                                     —                                     —                    —

              (1)     Vesting of Mr. Totty's restricted stock units is accelerated upon a demotion or a termination of his employment by us without cause. See
                      "Potential Payments pursuant to Mr. Totty's Employment Agreement" above for further details.

              (2)     Represents potential payments made upon a change in control occurring prior to November 30, 2011, in connection with the merger of
                      Groupon Ludic, Inc. and Ludic Labs, Inc. See "Potential Payments pursuant to Mr. Totty's Employment Agreement" above for further details.


 Employee Benefit Plans

        2010 Stock Plan

     We established the 2010 Stock Plan, originally effective April 16, 2010 and most recently amended on April 1, 2011, referred to
 herein as the 2010 Plan. The purpose of the 2010 Plan is to advance the interests of the Company, and our affiliates and stockholders,
 by providing incentives to retain and reward

                                                                           106




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                                                  Page 117 of 269
groupon.htm                                                                                                                               6/2/11 12:35 PM


 Table of Contents

 participants and motivate them to contribute to our growth and profitability. The 2010 Plan provides for the award of incentive stock
 options, nonqualified stock options, restricted stock purchase rights, restricted stock units, and restricted stock bonuses.

      Administration. The 2010 Plan is administered and interpreted by the compensation committee. The compensation committee
 has the full and final power and authority to determine the terms of awards under the 2010 Plan, including designating those persons
 who will receive awards, the types of awards granted, the fair market value of shares of stock or other property, and the restrictions
 and conditions that may be applicable to each award and underlying shares. Awards under the 2010 Plan are evidenced by award
 agreements.

        Grant of Awards; Shares Available for Awards. Generally, awards under the 2010 Plan may be granted to employees,
 consultants and directors of the Company or any affiliate, other than incentive stock options, which may only be granted to
 employees. An aggregate of 10,000,000 shares of our Class A common stock (as adjusted to reflect a three-for-one stock split
 completed in August 2010 and a two-for-one stock split completed in January 2011), in the aggregate, are reserved for issuance
 under the 2010 Plan. The number of shares issued or reserved pursuant to the 2010 Plan may be adjusted by the compensation
 committee, as it deems appropriate, as the result of stock splits, stock dividends, and similar changes in our Class A common stock.

       Stock Options. Under the 2010 Plan, the compensation committee may grant participants incentive stock options, which qualify
 for special tax treatment under United States tax law, as well as nonqualified stock options. The compensation committee establishes
 the duration of each option at the time of grant, with a maximum duration of ten years from the effective date of the grant. The
 compensation committee also establishes any performance criteria or passage of time requirements that must be satisfied prior to the
 exercise of options. Option grants must have an exercise price that is not less than the fair market value of a share of common stock
 on the grant date. Payment of the exercise price for shares being purchased pursuant to a stock option may be made in cash or check,
 or, if the Company permits, by means of a stock tender exercise, a cashless exercise or a net exercise.

       Restricted Stock Awards. Restricted stock awards under the 2010 Plan may be made in the form of either restricted stock
 bonuses or restricted stock purchase rights. Restricted stock bonuses are awards of shares that vest in accordance with terms and
 conditions established by the compensation committee. Restricted stock purchase rights are awards of rights to purchase shares that
 vest in accordance with terms and conditions established by the compensation committee; these rights are exercisable for a period
 established by the compensation committee that shall not exceed thirty days from the grant date. Except as otherwise provided by an
 award agreement, recipients of restricted stock awards have all the rights of stockholders with respect to the underlying shares,
 including the right to vote such shares and receive dividends on such shares.

      Restricted Stock Units. Under the 2010 Plan, the compensation committee may grant participants restricted stock units, which
 are units representing the right to receive shares of our common stock, or the cash value of such shares, on a specified date in the
 future, subject to forfeiture of such right. The compensation committee establishes the time or times on which a restricted stock unit
 will vest and the form of consideration (shares, cash or a combination of both) to be distributed to a participant on settlement.

      Change in Control Provisions. The compensation committee may provide that, in the event of a termination of a participant's
 service in connection with a change in control, an outstanding award will become fully vested and/or exercisable. In the event of a
 change in control, the 2010 Plan provides that the surviving entity may assume or continue our rights and obligations under any
 outstanding award, or may substitute substantially equivalent awards with respect to the surviving entity's stock. The compensation
 committee may also, in its discretion, determine that an outstanding award may be cashed out in

                                                                  107




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                          Page 118 of 269
groupon.htm                                                                                                                               6/2/11 12:35 PM


 Table of Contents



 connection with a change in control. A change in control is defined as either (i) a sale of more than fifty percent of our outstanding
 stock, a merger or consolidation, or a sale of substantially all of our assets, wherein the Company's stockholders do not retain,
 immediately after the transaction, in substantially the same proportions as their ownership of shares of voting stock immediately
 before the transaction, direct or indirect ownership of more than fifty percent of the total combined voting power of the Company's
 outstanding voting stock, or (ii) our stockholders' approval of a plan of liquidation or dissolution.

      Compliance with Laws. The 2010 Plan is designed to comply with all applicable federal, state and foreign securities laws,
 including the Securities Act of 1933 and the Securities Exchange Act of 1934. The 2010 Plan and all awards granted thereunder are
 intended to comply with, or otherwise be exempt from, Section 409A of the Code.

      Amendment and Termination. The compensation committee may amend, suspend or terminate the 2010 Plan at any time.
 However, no amendment that requires the approval of our stockholders shall be made without the approval of the Company's
 stockholders. In addition, no amendment, suspension, or termination of the 2010 Plan may adversely affect any outstanding awards;
 provided, however, that the compensation committee may amend the 2010 Plan or any award agreement for the purposes of
 conforming the 2010 Plan or the award agreement to the requirements of law, including the requirements of Section 409A of the Code.

        2008 Stock Option Plan

      We established the 2008 Stock Option Plan, originally effective January 15, 2008, referred to herein as the 2008 Plan. The 2008
 Plan was frozen in December 2010; however, option awards previously granted and outstanding under the 2008 Plan remain subject
 to the terms of the 2008 Plan and the applicable award agreement. The purpose of the 2008 Plan is to advance the interests of the
 Company and our affiliates and stockholders, by providing incentives to retain and reward participants and motivate them to
 contribute to our growth and profitability. The 2008 Plan provides for the award of incentive stock options and nonqualified stock
 options.

      Administration. The 2008 Plan is administered and interpreted by the compensation committee. The compensation committee
 has the full and final power and authority to determine the terms of option awards under the 2008 Plan, including designating those
 persons who will receive option awards, the number of shares to be subject to each option award, the fair market value of shares of
 stock or other property, and the restrictions and conditions that may be applicable to each option award and the underlying shares.
 Awards under the 2008 Plan are evidenced by option award agreements.

        Grant of Option Awards; Shares Available for Awards. Generally, option awards under the 2008 Plan may be granted to
 employees, consultants and directors of the Company or any affiliate, other than incentive stock options, which may only be granted
 to employees. An aggregate of 32,309,250 shares of our Class A common stock (as adjusted to reflect a three-for-one stock split
 completed in August 2010 and a two-for-one stock split completed in January 2011), in the aggregate, were reserved for issuance
 under the 2008 Plan. The number of shares issued or reserved pursuant to the 2008 Plan may be adjusted by the compensation
 committee, as it deems appropriate, as the result of stock splits, stock dividends, and similar changes in our Class A common stock.
 No new option awards have been granted under the 2008 Plan since it was frozen in December 2010.

      Stock Options. Under the 2008 Plan, the compensation committee granted participants incentive stock options, which qualified
 for special tax treatment under United States tax law, as well as nonqualified stock options. The compensation committee established
 the duration of each option at the time of grant, with a maximum duration of ten years from the effective date of the grant. The
 compensation committee also established any performance criteria or passage of time requirements that must be satisfied prior to the
 exercise of options. Incentive stock option grants were required to have an exercise price that was not

                                                                  108




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                          Page 119 of 269
groupon.htm                                                                                                                                   6/2/11 12:35 PM


 Table of Contents




 less than the fair market value of a share of common stock on the grant date, while nonqualified stock option grants were required to
 have an exercise price that was not less than eighty-five percent of the fair market value of a share of common stock on the grant date.
 Payment of the exercise price for shares being purchased pursuant to a stock option may be made in cash or check, or, if the Company
 permits, by means of a stock tender exercise, a cashless exercise or a net exercise.

      Change in Control Provisions. In the event of a change in control, the surviving entity may assume or continue the Company's
 rights and obligations under any outstanding option award, or may substitute substantially equivalent options with respect to the
 surviving entity's stock. Options that are neither assumed nor substituted upon a change in control shall terminate and cease to be
 outstanding as of the date of the change in control. A change in control is defined as either (i) a sale of more than fifty percent of our
 outstanding stock, a merger or consolidation, or a sale of substantially all of our assets, wherein the Company's stockholders do not
 retain, immediately after the transaction, in substantially the same proportions as their ownership of shares of voting stock
 immediately before the transaction, direct or indirect ownership of more than fifty percent of the total combined voting power of the
 Company's outstanding voting stock, or (ii) our stockholders' approval of a plan of liquidation or dissolution.

      Compliance with Laws. The 2008 Plan is designed to comply with all applicable federal, state and foreign securities laws,
 including the Securities Act of 1933 and the Securities Exchange Act of 1934.

      Amendment and Termination. The compensation committee may amend or terminate the 2008 Plan at any time. However, no
 amendment that requires the approval of our stockholders shall be made without the approval of the Company's stockholders. In
 addition, no amendment or termination of the 2008 Plan may adversely affect any outstanding options without the participant's
 consent, unless the amendment or termination is required to enable an option designated as an incentive stock option to qualify as an
 incentive stock option or is necessary to comply with applicable law.

        401(k) Plan

     Our 401(k) plan, which is generally available to all employees, allows participants to defer amounts of their annual compensation
 before taxes, up to the maximum amount specified by the Code, which was $16,500 per person for calendar year 2010. Elective
 deferrals are immediately vested and nonforfeitable upon contribution by the employee.

 Compensation and Risk

      In March 2011, management undertook a risk review of the Company's employee compensation plans and arrangements in which
 our employees (including our executive officers) participate, to determine whether these plans and arrangements have any features
 that might create undue risks or encourage unnecessary and excessive risk-taking that could threaten the value of the Company. In our
 review, we considered numerous factors and design elements that manage and mitigate risk, without diminishing the effect of the
 incentive nature of compensation, including the following: a commission-based incentive program for sales employees that only
 results in payout based on actual gross profits; discretionary bonuses for executive employees that are not tied to specific quantitative
 formulas and may be adjusted for qualitative factors and individual performance; ownership of a large percentage of our shares and
 equity-based awards by senior management; and our practice of awarding long-term equity grants upon hire to our executives in
 order to directly tie the executive's expectation of compensation to their contributions to our long-term value of the Company. Based
 on our review, we concluded that any potential risks arising from our employee compensation programs, including our executive
 programs, are not reasonably likely to have a material adverse effect on the Company.

                                                                    109




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                              Page 120 of 269
groupon.htm                                                                                                                              6/2/11 12:35 PM


 Table of Contents

 Director Compensation in 2010

      Historically, with the exception of cash payments to Messrs. Keywell and Lefkofsky in 2010, we have not paid our non-
 employee directors any cash compensation for their services as members of our Board. We have provided occasional grants of equity
 awards to directors, though none were granted in 2010. As described below, we have implemented an annual cash and equity
 compensation program for our non-employee directors beginning in 2011. The following table sets forth the compensation paid to
 our non-employee directors in 2010.

                                                                       Fees Earned
                                                                         or Paid         Option             All Other
              Name                                                     in Cash ($)      Awards ($)       Compensation ($)   Total ($)
              Peter J. Barris                                                   —                 —                    —           —
              Kevin J. Efrusy                                                   —                 —                    —           —
              Jason Fried (1)                                                   —                 —                    —           —
              Bradley A. Keywell                                            90,000                —                    —           —
              Eric P. Lefkofsky                                             90,000                —                    —           —
              Theodore J. Leonsis                                               —                 —                    —           —
              John R. Walter (1)                                                —                 —                    —           —
              Harry Weller (1)                                                  —                 —                    —           —

              (1)    Messrs. Fried, Walter and Weller ceased to be members of the Board as of January 13, 2011.


      As of December 31, 2010, as adjusted for the August 2010 and January 2011 stock splits, the aggregate option awards
 outstanding for our non-employee directors were as follows: Theodore J. Leonsis—600,000; and Jason Fried—450,000. There were
 no outstanding stock or option awards for any other non-employee directors.

     In February 2011, our non-employee directors each received an award of 60,000 shares of restricted stock, which will vest in four
 equal installments on each anniversary of the grant date. Beginning in 2011, we have also implemented an annual cash and equity
 compensation program, under which each non-employee director will receive a retainer of $150,000 annually, half of which will be
 paid in cash, and the other half in restricted stock units.

                                                                          110




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                         Page 121 of 269
groupon.htm                                                                                                                                                   6/2/11 12:35 PM


 Table of Contents


                                                       RELATED PARTY TRANSACTIONS

      In addition to the cash and equity compensation arrangements of our directors and executive officers discussed above under
 "Management—Director Compensation" and "Executive Compensation," the following is a description of transactions since
 January 1, 2008, to which we have been a party in which the amount involved exceeded or will exceed $120,000 within any fiscal
 year and in which any of our directors, executive officers, beneficial holders of more than 5% of our capital stock or entities affiliated
 with them had or will have a direct or indirect material interest.

 Legal Services of Lefkofsky & Gorosh, P.C.

     Steven P. Lefkofksy, the brother of Eric P. Lefkofsky, is a founder and shareholder of Lefkofsky & Gorosh, P.C. For 2009, 2010
 and the first quarter of 2011, we paid Lefkofsky & Gorosh, P.C. approximately $0.1 million, $0.3 million and $0.2 million,
 respectively, for legal services rendered. We expect to continue to obtain legal services from Lefkofsky & Gorosh in the future.

 Sublease with Echo Global Logistics, Inc.

      In May 2009, we entered into an agreement with Echo Global Logistics, Inc. (NASDAQ: ECHO) pursuant to which we sub-
 lease a portion of Echo's office space in Chicago, which was subsequently amended in November 2009. Pursuant to the sublease, we
 paid Echo approximately $0.1 million and $0.2 million for 2009 and 2010, respectively. Three of our directors, Peter A. Barris,
 Eric P. Lefkofsky and Bradley A. Keywell, are also directors of Echo and have direct and/or indirect ownership interests in Echo. In
 addition, John R. Walter, one of our former directors, is also a director of Echo and has an ownership interest in Echo. Certain of our
 stockholders, including Old Willow Partners, LLC, an entity controlled by Richard A. Heise, Jr., and affiliates of New Enterprise
 Associates, also have direct and/or indirect ownership interests in Echo.

 Sales of Our Securities

     We sold the following capital stock to our directors, officers and holders of 5% or more of our outstanding capital stock, and their
 respective affiliates, in private transactions on the dates set forth below. The information set forth below with respect to our voting
 and non-voting common stock gives effect to (i) the three-for-one stock split of our voting and non-voting common stock that was
 completed in August 2010 and (ii) the two-for-one stock split of our voting and non-voting common stock that was completed in
 January 2011.

                                         Series D     Series E     Series F    Series G      Voting       Non-Voting                     Total
                                         Preferred    Preferred    Preferred   Preferred    Common         Common        Date of       Purchase
              Name of Stockholder        Stock(1)     Stock(2)      Stock(3)    Stock(4)    Stock(5)       Stock(6)     Purchase         Price
              Entities affiliated with
                New Enterprise
                Associates                6,560,174                                                                        1/15/08 $     4,799,999
              Andrew D. Mason                                                                               1,800,000      11/1/09 $       144,000
              Entities affiliated with
                Accel Growth
                Fund L.P.                              2,932,552                                                          11/17/09 $    20,000,005
              Entities affiliated with
                New Enterprise
                Associates                             1,466,276                                                          11/17/09 $    10,000,002
              Entities affiliated with
                CityDeal
                Management UG                                                                19,800,000                    5/15/10         (7)
              Entities affiliated with
                CityDeal
                Management UG                                                                21,600,000                    12/1/10         (8)
              Howard Schultz(9)                                                                               949,668      2/10/11 $    15,000,006
              Theodore J. Leonsis                                                                              63,331      2/10/11 $     1,000,313


              (1)       Each share of Series D preferred stock will convert into six shares of Class A common stock upon the consummation of this offering.


                                                                               111




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                                              Page 122 of 269
groupon.htm                                                                                                                                                      6/2/11 12:35 PM


 Table of Contents

              (2)     Each share of Series E preferred stock will convert into six shares of Class A common stock upon the consummation of this offering.

              (3)     Each share of Series F preferred stock will convert into six shares of Class A common stock upon the consummation of this offering.

              (4)     Each share of Series G preferred stock will convert into two shares of Class A common stock upon the consummation of this offering.

              (5)     Each share of voting common stock will convert into one share of Class A common stock upon the consummation of this offering.

              (6)     Each share of non-voting common stock will convert into one share of Class A common stock upon the consummation of this offering.

              (7)     These shares were issued as consideration in connection with the merger of CityDeal Europe GmbH with and into Groupon Germany GbR.

              (8)     These shares were issued as contingent consideration in connection with the merger of CityDeal Europe GmbH with and into Groupon
                      Germany GbR.

              (9)     Includes 567,269 shares of non-voting common stock owned by Maveron Equity Partners IV, L.P., 47,483 shares of non-voting common stock
                      held by MEP Associates IV, L.P. and 18,360 shares of non-voting common stock held by Maveron IV Entrepreneurs' Fund, L.P. (together, the
                      "Maveron Funds"). Mr. Schultz is a limited partner of MEP Associates IV, L.P. and has an economic membership interest in, but is not a
                      manager of, Maveron General Partner IV LLC, the general partner of the Maveron Funds.


 Series F Preferred Stock Investment

      In April 2010, we issued 4,202,658 shares of our Series F preferred stock to a group of third-party investors in exchange for
 $135.0 million in cash, or $32.12 per share. We retained $15.0 million of these proceeds for working capital and general corporate
 purposes. We used the remaining $120.0 million of these proceeds to redeem voting and non-voting common stock from our existing
 stockholders at a purchase price of $5.3537 per share (on a post-stock split basis). In connection with this redemption, the following
 of our directors, officers and 5% or greater stockholders (or their respective affiliates) of the Company received the payments listed
 below:

              Director, Officer or 5% Stockholder                                                                            Redemption
              (or Affiliate)                                                  Shares Redeemed (1)                          Payment Amount
              Green Media, LLC (2)                        10,665,450 shares of voting common stock                        $      57,095,709
              Rugger Ventures LLC (3)                      4,336,284 shares of voting common stock                        $      23,213,574
              Andrew D. Mason                              3,349,584 shares of voting common stock                        $      17,931,440
              Theodore J. Leonsis                             38,946 shares of non-voting common stock                    $         208,491
              600 West Partners II, LLC (4)                1,071,606 shares of voting common stock                        $       5,736,664
              Kenneth M. Pelletier (5)                       181,110 shares of non-voting common stock                    $         969,542
              John R. Walter (6)                             609,156 shares of voting common stock                        $       3,261,015

              (1)     The number of shares of voting and non-voting common stock redeemed gives effect to the subsequent (i) three-for-one stock split of our
                      voting and non-voting common stock that was completed in August 2010 and (ii) two-for-one stock split of our voting and non-voting
                      common stock that was completed in January 2011.

              (2)     Green Media, LLC is owned by Eric P. Lefkofsky (50%) and his wife, Elizabeth Kramer Lefkofsky (50%).

              (3)     Rugger Ventures LLC is owned by Kimberly Keywell (80%), the wife of Bradley A. Keywell, and Mr. Keywell's children (20%).

              (4)     The manager of 600 West Partners II, LLC is Blue Media, LLC, an entity owned by Eric P. Lefkofsky (50%) and his wife, Elizabeth Kramer
                      Lefkofsky (50%).

              (5)     Mr. Pelletier is our former Chief Technology Officer.

              (6)     Mr. Walter is one of our former directors.


 Series G Preferred Stock Investment

      In December 2010 and January 2011, we issued 30,072,814 aggregate shares of our Series G preferred stock to a group of third-
 party investors in exchange for $946.0 million in cash, or $31.59 per share. We retained $136.2 million of these proceeds for working
 capital and general corporate purposes. We used the

                                                                              112




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                                                 Page 123 of 269
groupon.htm                                                                                                                                                     6/2/11 12:35 PM


 Table of Contents




 remaining $809.8 million of these proceeds to redeem voting and non-voting common stock from our existing stockholders at a
 purchase price of $15.795 per share (on a post-stock split basis), and Series D preferred stock and Series E preferred stock from our
 existing stockholders at a purchase price of $31.59 per share. In connection with this redemption, the following of our directors,
 officers and 5% or greater stockholders (or their respective affiliates) of the Company received the payments listed below:

              Director, Officer or 5% Stockholder                                                                          Redemption
              (or Affiliate)                                                  Shares Redeemed (1)                        Payment Amount
              Andrew D. Mason                             633,172 shares of voting common stock                       $       10,000,000
              600 West Partners II, LLC (2)             3,899,526 shares of voting common stock                       $       61,590,170
              Green Media, LLC (3)                     16,302,446 shares of voting common stock                       $      257,481,816
              John R. Walter (4)                        1,302,460 shares of voting common stock                       $       20,571,474
              Entities affiliated with Accel
                Growth Fund L.P.                          211,037 shares of Series E preferred stock                  $       19,999,976
              Entities affiliated with New                603,754 shares of Series D preferred stock and
                Enterprise Associates                     134,940 shares of Series E preferred stock                  $       70,006,315
              Entities affiliated with
                CityDeal Management UG                 10,778,720 shares of voting common stock                       $      170,249,882
              Rugger Ventures LLC (5)                   8,447,860 shares of voting common stock                       $      133,427,713
              Brian K. Totty                               41,470 shares of non-voting common stock                   $          655,019
              Kenneth M. Pelletier (6)                    481,918 shares of non-voting common stock                   $        7,611,895
              Jason Fried (7)                              35,310 shares of non-voting common stock                   $          557,721

              (1)     The number of shares of voting and non-voting common stock redeemed gives effect to (i) the three-for-one stock split of our voting and
                      non-voting common stock that was completed in August 2010 and (ii) subsequent two-for-one stock split of our voting and non-voting
                      common stock that was completed in January 2011.

              (2)     The manager of 600 West Partners II, LLC is Blue Media, LLC, an entity owned by Eric P. Lefkofsky (50%) and his wife, Elizabeth Kramer
                      Lefkofsky (50%).

              (3)     Green Media, LLC is owned by Eric P. Lefkofsky (50%) and his wife, Elizabeth Kramer Lefkofsky (50%).

              (4)     Mr. Walter is one of our former directors.

              (5)     Rugger Ventures LLC is owned by Kimberly Kewell (80%), the wife of Bradley A. Keywell, and Mr. Keywell's children (20%).

              (6)     Mr. Pelletier is our former Chief Technology Officer.

              (7)     Mr. Fried is one of our former directors.


 Non-Voting Common Stock Investment

      In February 2011, we issued 1,090,830 shares of our non-voting common stock to Howard Shultz and his affiliates, Theodore
 Leonsis, Matt McCutchen and Placido Arango in exchange for $17.2 million in cash, or $15.795 per share. We retained $0.2 million
 of the proceeds for working capital and general corporate purposes. We used the remaining $17.0 million of these proceeds to redeem
 non-voting common stock from our existing stockholders at a purchase price of $15.795 per share. In connection with this
 redemption, the following of our directors, officers and 5% or greater stockholders of the Company received the payments listed
 below:

                                                                                                                        Redemption
              Director, Officer or 5% Stockholder                               Shares Redeemed                       Payment Amount
              John R. Walter (1)                                253,325 shares of voting common stock                $        4,001,268
              Robert S. Solomon(2)                            316,556 shares of non-voting common stock              $        4,890,790(3)

              (1)     Mr. Walter is one of our former directors.

              (2)     Mr. Solomon is our former President and Chief Operating Officer.

              (3)     Prior to the redemption, Mr. Solomon exercised options to purchase 316,556 shares of non-voting common stock. The redemption payment
                      amount of $4,890,790 is net of the aggregate exercise price of $109,212.


                                                                              113




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                                                Page 124 of 269
groupon.htm                                                                                                                                6/2/11 12:35 PM


 Table of Contents

 Loan to Andrew D. Mason

     On November 1, 2009, Andrew D. Mason, our Chief Executive Officer and one of our directors, purchased 1,800,000 shares of
 our non-voting common stock with a promissory note to Groupon in the amount of $144,000. Mr. Mason repaid the promissory note
 with respect to $132,000 on May 4, 2011 and forfeited 150,000 shares. The remaining balance of the promissory note was cancelled.

 Transactions and Relationships with Samwers and Affiliated Entities

      CityDeal Acquisition. On May 15, 2010, we entered into and consummated a Share Exchange and Transfer Agreement by and
 among CD-Inv Holding UG ("Holding"), CD-Rocket Holding UG ("Rocket Holding"), CityDeal Management UG ("CityDeal
 Management"), CityDeal Europe GmbH ("CityDeal"), Groupon Germany Gbr ("Groupon Germany") and Groupon, Inc., pursuant to
 which Rocket Holding and CityDeal Management transferred all of the outstanding shares of CityDeal to Groupon Germany in
 exchange for 19,800,000 shares of our voting common stock, and CityDeal merged with and into Groupon Germany with CityDeal as
 the surviving entity and a wholly-owned subsidiary of Groupon. An additional 21,600,000 shares of our voting common stock were
 issued to Rocket Holding and CityDeal Management on December 1, 2010, as contingent consideration for the merger. As a result of
 the merger, Holding, Rocket Holding and CityDeal Management, entities affiliated with Oliver Samwer, Marc Samwer and Alexander
 Samwer, acquired an aggregate of 41,400,000 shares of our voting common stock representing 10.3% of the total outstanding voting
 shares. Our founders may vote the shares held by Holding, Rocket Holding and CityDeal Management. See "Principal and Selling
 Stockholders" for further information.

       CityDeal Loan Agreement. In May 2010, we and the former CityDeal shareholders (including Oliver Samwer, Marc Samwer
 and Alexander Samwer, collectively the "Samwers") entered into a loan agreement to provide CityDeal with a $20.0 million term loan
 facility (the "Facility"). The Facility subsequently was amended on July 20, 2010 increasing the total commitment to $25.0 million.
 Each of the Company and the former CityDeal shareholders was obligated to make available $12.5 million under the terms of the
 Facility. The entire $25.0 million under the Facility was disbursed to CityDeal during 2010. Proceeds from the Facility were used to
 fund operational and working capital needs. The outstanding balance accrued interest at a rate of 5% per annum. The outstanding
 balance and accrued interest were payable upon termination of the Facility, which was the earlier of any prepayments or
 December 2012. In March 2011, CityDeal repaid all amounts outstanding to the former CityDeal shareholders related to the Facility.

        Consulting Agreement with Oliver Samwer. On May 12, 2010, CityDeal entered into a consulting agreement with Oliver
 Samwer, pursuant to which Mr. Samwer advises CityDeal with respect to its goals and spends at least fifty-percent of his work hours
 consulting for CityDeal. CityDeal reimburses Mr. Samwer for travel and other expenses incurred in connection with his service to
 CityDeal. Mr. Samwer does not receive any additional compensation from CityDeal or Groupon in connection with his consulting
 role. The term of Mr. Samwer's consulting agreement expires on October 18, 2011. We paid $0.1 million to reimburse Mr. Samwer
 for travel and other expenses for 2010.

        Consulting Agreement with Marc Samwer. On May 12, 2010, CityDeal entered into a consulting agreement with Marc
 Samwer, pursuant to which Mr. Samwer advises CityDeal with respect to its goals and spends at least fifty-percent of his work hours
 consulting for CityDeal. CityDeal reimburses Mr. Samwer for travel and other expenses incurred in connection with his service to
 CityDeal. Mr. Samwer does not receive any additional compensation from CityDeal or Groupon in connection with his consulting
 role. The term of Mr. Samwer's consulting agreement expires on October 18, 2011. We paid less than $0.1 million to reimburse
 Mr. Samwer for travel and other expenses for 2010.

     Management Services. CityDeal entered into agreements with Rocket Internet GmbH ("Rocket") and various other companies
 in which the Samwers have direct and/or indirect ownership interests to provide information technology, marketing and other services
 to CityDeal. CityDeal paid $1.4 million to Rocket and a total of $0.2 million to the other companies for services rendered for 2010. In
 April 2011, this

                                                                  114




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                           Page 125 of 269
groupon.htm                                                                                                                              6/2/11 12:35 PM


 Table of Contents



 arrangement terminated and the personnel primarily responsible for the services provided to us became our employees.

     Merchant Contracts. CityDeal entered into several agreements with merchant companies in which the Samwers have direct
 and/or indirect ownership interests, and, in some cases, who are also directors of these companies, pursuant to which CityDeal
 conducts its business by offering goods and services at a discount with these merchants. CityDeal paid in total $1.1 million to these
 companies under the merchant agreements for 2010.

      E-Commerce King Limited Joint Venture (China). On January 14, 2011, Groupon, B.V. entered into a joint venture with Rocket
 Asia GmbH & Co. KG, an entity affiliated with the Samwers ("Rocket Asia"), TCH Burgundy Limited ("Tencent") and Group
 Discount (HK) Limited ("Yunfeng"). Pursuant to the joint venture arrangement, Groupon B.V. and Tencent each own 40% of E-
 Commerce King Limited ("E-Commerce") and Rocket Asia and Yunfeng each own 10% of E-Commerce. Pursuant to a shareholders
 agreement entered into in connection with the joint venture, the board of directors of E-Commerce consists of a director appointed by
 a subsidiary of Groupon, a director appointed by Rocket Asia, who is Oliver Samwer, and two directors appointed by Tencent. Each
 of the parties to the joint venture also has rights of co-sale and first refusal pursuant to the shareholders agreement.

 The Point.com

      Prior to the closing of this offering, we plan to convert The Point.com, our predecessor entity, which is a web platform that
 enables users to promote collective action in support of social, educational or other causes, into a not-for-profit corporation.
 Following the conversion, we and our stockholders will no longer have any financial interest in The Point.com.

 Recapitalization

      Prior to the completion of this offering, we intend to recapitalize all outstanding shares of our capital stock (other than our
 Series B preferred stock) into newly issued shares of Class A common stock. Each share of Series D preferred stock, Series E
 preferred stock and Series F preferred stock will be converted into newly issued shares of Class A common stock on approximately a
 six-for-one basis; each share of Series G preferred stock will be converted into newly issued shares of Class A common stock on a
 two-for-one basis; and each share of non-voting common stock and common stock will be converted into newly issued shares of
 Class A common stock on a one-for-one basis. In addition, prior to the completion of this offering, we intend to recapitalize all
 outstanding shares of our Series B preferred stock into newly issued shares of our Class B common stock on an approximately six-
 for-one basis. The purpose of the recapitalization is to exchange all of our outstanding shares of our capital stock (other than our
 Series B preferred stock) for shares of the Class A common stock that will be sold in this offering. In addition, each outstanding
 option will be converted into an option to receive one share of Class A common stock.

 Investor Rights Agreement

      We have entered into an investor rights agreement with certain holders of our common stock and preferred stock that provides
 for certain rights relating to the registration of their shares of common stock, including those shares issued in connection with the
 recapitalization. See "Description of Capital Stock—Registration Rights" below for additional information.

 Indemnification of Officers and Directors

     Upon completion of this offering, our amended and restated certificate of incorporation and bylaws will provide that we will
 indemnify each of our directors and officers to the fullest extent permitted by Delaware law.

                                                                 115




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                         Page 126 of 269
groupon.htm                                                                                                                                  6/2/11 12:35 PM


 Table of Contents

 Board of Directors

      Prior to the closing of this offering, New Enterprise Associates, Accel Growth Fund L.P. the holders of preferred stock and
 common stock and the holders of our Series B preferred stock had the rights to appoint individual directors. See "Management—
 Board of Directors" above for more information. These rights terminate upon the closing of this offering. The respective nominees
 will remain on our Board following this offering, but we are under no contractual obligation to retain them.

 Policies and Procedures for Related Party Transactions

      As provided by our audit committee charter, our audit committee is responsible for reviewing and approving any related party
 transaction. Prior to the creation of our audit committee, our full board of directors reviewed related party transactions.

       All of the transactions set forth above were approved or will be ratified by our board of directors. We believe that we have
 executed all of the transactions set forth above on terms no less favorable to us than we could have obtained from unaffiliated third
 parties. It is our intention to ensure that all future transactions between us and our officers, directors and principal stockholders and
 their affiliates are approved by our audit committee on terms no less favorable to us than those that we could obtain from unaffiliated
 third parties.

                                                                   116




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                             Page 127 of 269
groupon.htm                                                                                                                                          6/2/11 12:35 PM


 Table of Contents


                                                PRINCIPAL AND SELLING STOCKHOLDERS

     The following table sets forth certain information with respect to the beneficial ownership of our common stock at June 2, 2011,
 and as adjusted to reflect the sale of Class A common stock offered by us in this offering, for

        •       each person who we know beneficially owns more than five percent of our outstanding capital stock;

        •       each of our directors;

        •       each of our named executive officers;

        •       all of our directors and executive officers as a group; and

        •       all selling stockholders.

     Unless otherwise noted below, the address of each beneficial owner listed in the table is c/o Groupon, Inc., 600 West Chicago
 Avenue, Suite 620, Chicago, Illinois 60654.

      We have determined beneficial ownership in accordance with the rules of the SEC. Except as indicated by the footnotes below,
 we believe, based on the information furnished to us, that the persons and entities named in the table below have sole voting and
 investment power with respect to all shares of Class A and Class B common stock that they beneficially own, subject to applicable
 community property laws.

      Applicable percentage ownership is based on 296,574,301 shares of Class A common stock and 1,199,988 shares of Class B
 common stock outstanding at June 2, 2011, assuming the recapitalization of all outstanding shares of Series B preferred stock into
 Class B common stock and all other classes of preferred stock, voting common stock and non-voting common stock into Class A
 common stock. In computing the number of shares of common stock beneficially owned by a person and the percentage ownership of
 that person, we deemed outstanding shares of common stock subject to options held by that person that are currently exercisable or
 exercisable within 60 days of June 2, 2011. We did not deem these shares outstanding, however, for the purpose of computing the
 percentage ownership of any other person. Beneficial ownership representing less than one percent is denoted with an "*."

                                               Shares Beneficially Owned                                     Shares Beneficially Owned
                                                   Prior to Offering                                               After Offering

                                                                                                               Class A      Class B
                                             Class A               Class B          % Total     Shares        Common       Common        % Total
                                         Common Stock           Common Stock         Voting     Being           Stock        Stock        Voting
              Name of Beneficial Owner Shares        %          Shares     %        Power (1) Offered (17)   Shares %     Shares %       Power (1)
              Officers and Directors
              Andrew D. Mason (2)(16)    22,967,252   7.7        499,992     41.7
              Jason E. Child                     —     —              —        —
              Margaret H. Georgiadis (3)    300,000     *
              Kenneth M. Pelletier        1,096,972     *             —       —
              Robert S. Solomon (4)       1,610,944   6.8             —       —
              Brian K. Totty (5)              285,308      *          —       —
              Peter J. Barris (6)                  —      —           —       —
              Kevin J. Efrusy (7)                  —      —           —       —
              Bradley A. Keywell(8)(16)     20,415,848    6.9    200,004     16.7
              Eric P. Lefkofsky (9)(16)     64,113,046   21.6    499,992     41.7
              Theodore J. Leonsis (10)        924,385      *          —       —
              Howard Schultz(11)              917,185      *          —       —
              All executive officers and
                directors as a group
                (12 persons)(12)           109,923,024   36.9   1,199,988   100.0


                                                                               117




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                                     Page 128 of 269
groupon.htm                                                                                                                                                              6/2/11 12:35 PM


 Table of Contents

                                              Shares Beneficially Owned                                     Shares Beneficially Owned
                                                  Prior to Offering                                               After Offering

                                                                                                             Class A          Class B
                                            Class A               Class B         % Total      Shares        Common          Common        % Total
                                          Common Stock         Common Stock       Voting       Being          Stock            Stock       Voting
              Name of Beneficial Owner Shares           %      Shares      %      Power (1) Offered (17)   Shares    %     Shares     %    Power (1)
              5% Stockholders
              Green Media, LLC(9)(16)     64,113,046    21.6    499,992    41.7
              Rugger
                Ventures LLC(8)(16)       20,415,848     6.9    200,004    16.7
              Entities affiliated with
                New Enterprise
                Associates, Inc.
                1954 Greenspring
                Drive, Suite 600
                Timonium, MD
                21093(13)                 43,726,536    14.7          —      —
              Entities affiliated with
                Accel Growth
                Fund L.P.
                c/o Accel Partners
                428 University Avenue
                Palo Alto, CA
                94301(14)                 16,601,964     5.6          —      —
              Entities affiliated with
                CityDeal Management
                UG (15)
                Soarbrücker Str. 20/21
                10405 Berlin
                Bundesrepublik
                Deutschland               30,621,280    10.3          —      —

              Selling Stockholders


              (1)       Percentage total voting power represents voting power with respect to all shares of our Class A and Class B common stock, as a single class.
                        Each holder of Class B common stock shall be entitled to            votes per share of Class B common stock and each holder of Class A
                        common stock shall be entitled to one vote per share of Class A common stock on all matters submitted to our stockholders for a vote. The
                        Class A common stock and Class B common stock vote together as a single class on all matters submitted to a vote of our stockholders,
                        except as may otherwise be required by law. The Class B common stock is convertible at any time by the holder into shares of Class A
                        common stock on a share-for-share basis.

              (2)       Includes 21,317,252 shares of our Class A common stock and 499,992 shares of our Class B common stock held by Andrew Mason Trust.
                        Does not include 91,120 shares of our Class A common stock held by 600 West Partners II, LLC, which represents Mr. Mason's proportionate
                        economic interest in the shares of Class A common stock held by 600 West Partners II.

              (3)       Includes 300,000 shares of our Class A common stock issuable upon the exercise of restricted stock units exercisable within 60 days of
                        June 2, 2011.

              (4)       Includes 1,610,944 shares of our Class A common stock issuable upon the exercise of options that are exercisable within 60 days of June 2.
                        Mr. Solomon ceased to be our President and Chief Operating Officer on March 22, 2011.

              (5)       Includes 38,360 shares of our Class A common stock issuable upon the exercise of restricted stock units that are exercisable within 60 days of
                        June 2, 2011.

              (6)       Does not include shares held by entities affiliated with New Enterprise Associates described in footnote 13. Mr. Barris is the Managing
                        General Partner of New Enterprise Associates.

              (7)       Does not include shares held by entities affiliated with Accel Growth Fund L.P. Mr. Efrusy is the General Partner of Accel.

              (8)       Includes 20,415,848 shares of our Class A common stock and 200,004 shares of our Class B common stock held by Rugger Ventures LLC, an
                        entity owned by Kimberly Keywell (80%), the wife of Bradley A. Kewell, and Mr. Keywell's children (20%).

              (9)       Includes 54,682,108 shares of our Class A common stock and 499,992 shares of our Class B common stock held by Green Media, LLC, an
                        entity owned by Eric P. Lefkofsky (50%) and his wife, Elizabeth Kramer Lefkofsky (50%). Mr. Lefkofsky shares voting and investment
                        control with respect to the shares held by Green Media, LLC. Also includes 9,430,938 shares of our Class A common stock held by 600 West
                        Partners II, LLC, the manager of which is Blue Media, LLC, an entity owned by Mr. Lefkofsky (50%) and Mrs. Lefkofsky (50%).

              (10)      Includes 300,000 shares of our Class A common stock issuable upon the exercise of options that are exercisable within 60 days of June 2,
                        2011.

              (11)      Includes 567,269 shares of our Class A common stock owned by Maveron Equity Partners IV, L.P., 47,483 shares of our Class A common
                        stock held by MEP Associates IV, L.P. and 18,360 shares of our Class A common stock held by Maveron IV Entrepreneurs' Fund, L.P.
                        (together, the "Maveron Funds"). Mr. Schultz is a limited partner of MEP Associates IV, L.P. and has an economic membership interest in,
                        but is not a manager of, Maveron General Partner IV LLC, the general partner of the Maveron Funds. Also includes 15,000 shares of our



file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                                                         Page 129 of 269
groupon.htm                                                                                                                            6/2/11 12:35 PM


                     Class A common stock issuable upon the exercise of options that are exercisable within 60 days of June 2, 2011.

              (12)   Excludes Kenneth M. Pelletier and Rob Solomon, who were not executive officers on June 2, 2011.


                                                                           118




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                       Page 130 of 269
groupon.htm                                                                                                                                                                 6/2/11 12:35 PM


 Table of Contents

               (13)     Includes 43,592,478 shares of our Class A common stock held by New Enterprise Associates 12, Limited Partnership ("NEA 12"). The shares
                        directly held by NEA 12 are indirectly held by NEA Partners 12, Limited Partnership ("NEA Partners 12"), the sole general partner of NEA
                        12, NEA 12 GP, LLC ("NEA 12 LLC"), the sole general partner of NEA Partners 12, and each of the individual Managers of NEA 12 LLC.
                        The individual Managers (collectively, the "Managers") of NEA 12 LLC are M. James Barrett, Peter J. Barris, Forest Baskett, Ryan D. Drant,
                        Patrick J. Kerins, Krishna "Kittu" Kolluri, C. Richards Kramlich, Charles W. Newhall III, Mark W. Perry and Scott D. Sandell. NEA Partners
                        12, NEA 12 LLC and the Managers share voting and dispositive power over the shares directly held by NEA 12. Also includes 134,058 shares
                        of our Class A common stock held by NEA Ventures 2008, L.P. ("Ven 2008"). The shares directly held by Ven 2008 are indirectly held by
                        Karen P. Welsh, the general partner of Ven 2008, who holds voting and dispositive power over the shares directly held by Ven 2008. All
                        indirect holders of the above referenced shares disclaim beneficial ownership of all applicable shares except to the extent of their actual
                        pecuniary interest therein.

               (14)     Includes 15,809,826 shares of our Class A common stock held by Accel Growth Fund L.P., 210,648 shares of our Class A common stock held
                        by Accel Growth Fund Investors 2009 LLC, 308,616 shares of our Class A common stock held by Accel Growth Fund Strategic Partners LP,
                        24,122 shares of our Class A common stock held by Accel Investors 2007 LLC, 224,820 shares of our Class A common stock held by Accel
                        IX L.P. and 23,932 shares of our Class A common stock held by Accel IX Strategic Partners L.P.

               (15)     Includes 2,771,582 shares of our Class A common stock held by CityDeal Management UG, 9,719,646 shares of our Class A common stock
                        held by CD-Inv Holding UG and 18,130,052 shares of our Class A common stock held by CD-Rocket Holding UG.

               (16)     In connection with the CityDeal acquisition, Rocket Holding and CityDeal Management entered into a shareholders agreement with our
                        founders. Pursuant to the shareholders agreement, the shares of our Class A common stock owned by Rocket Holding, CityDeal Management
                        and their affiliates must be voted in the same manner as the majority-in-interest of the shares of Class A common stock held by our founders
                        in connection with certain material transactions, including the initial public offering of our Class A common stock, the authorization,
                        designation or issuance of any new class or series of our capital stock or a material acquisition or asset transfer. In connection with the
                        shareholders agreement, Rocket Holding, CityDeal Management and their affiliates have granted our founders, president and secretary proxy
                        authority to vote their shares in connection with such material transactions for five years following the closing of this offering.

               (17)     If the underwriters' over-allotment option is exercised in full,    of the additional shares will be allocated to the Company and the balance of
                        the additional shares sold will be allocated among the selling stockholders as follows:

                                                                                                                       Shares
                                                                                                                    Subject to the
                                                                                                                        Over-
                                                                                                                      allotment
                                Selling Stockholders                                                                   Option




        If the underwriters' over-allotment option is exercised in part, the additional shares sold would be allocated pro rata based upon the share amounts set forth in
        the preceding table.


                                                                                 119




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                                                            Page 131 of 269
groupon.htm                                                                                                                                  6/2/11 12:35 PM


 Table of Contents


                                               DESCRIPTION OF CAPITAL STOCK

 General

      The following is a summary of our capital stock and provisions of our amended and restated certificate of incorporation, amended
 and restated bylaws and recapitalization agreement, as each will be in effect upon the closing of this offering, and certain provisions
 of Delaware law. This summary does not purport to be complete and is qualified in its entirety by the provisions of our amended and
 restated certificate of incorporation and amended and restated bylaws, copies of which have been or will be filed with the SEC as
 exhibits to the registration statement of which this prospectus is a part. References in this section to the "Company," "we," "us" and
 "our" refer to Groupon, Inc. and not to any of its subsidiaries.

     Upon the closing of this offering, the total amount of our authorized capital stock will consist of      shares of Class A common
 stock, $0.0001 par value,        shares of Class B common stock, $0.0001 par value, and           shares of preferred stock.

 Recapitalization

      Prior to the completion of this offering, we intend to recapitalize all outstanding shares of our capital stock (other than our
 Series B preferred stock) into newly issued shares of Class A common stock. Each share of Series D preferred stock, Series E
 preferred stock and Series F preferred stock will be converted into newly issued shares of Class A common stock on approximately a
 six-for-one basis; each share of Series G preferred stock will be converted into newly issued shares of Class A common stock on a
 two-for-one basis; and each share of non-voting common stock and common stock will be converted into newly issued shares of
 Class A common stock on a one-for-one basis. In addition, prior to the completion of this offering, we intend to recapitalize all
 outstanding shares of our Series B preferred stock into newly issued shares of our Class B common stock on an approximately six-
 for-one basis. The purpose of the recapitalization is to exchange all of our outstanding shares of our capital stock (other than our
 Series B preferred stock) into shares of the Class A common stock that will be sold in this offering. In addition, each outstanding
 option will be converted into an option to receive one share of Class A common stock upon the applicable exercise date.

 Class A and Class B Common Stock

      Voting Rights. Holders of our Class A and Class B common stock have identical rights, except that holders of our Class A
 common stock are entitled to one vote per share and holders of our Class B common stock are entitled to               votes per share.
 Holders of shares of Class A common stock and Class B common stock will vote together as a single class on all matters (including
 the election of directors) submitted to a vote of stockholders, unless otherwise required by law. We have not provided for cumulative
 voting for the election of directors in our certificate of incorporation.

      Dividends. Subject to preferences that may apply to any shares of preferred stock outstanding at the time, the holders of Class A
 common stock and Class B common stock shall be entitled to share equally in any dividends that our board of directors may
 determine to issue from time to time. In the event a dividend is paid in the form of shares of common stock or rights to acquire shares
 of common stock, the holders of Class A common stock shall receive Class A common stock, or rights to acquire Class A common
 stock, as the case may be, and the holders of Class B common stock shall receive Class B common stock, or rights to acquire Class B
 common stock, as the case may be.

      Liquidation Rights. Upon our liquidation, dissolution or winding-up, the holders of Class A common stock and Class B
 common stock shall be entitled to share equally all assets remaining after the payment of any liabilities and the liquidation preferences
 on any outstanding preferred stock.

     Conversion. Our Class A common stock is not convertible into any other shares of our capital stock.

                                                                   120




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                             Page 132 of 269
groupon.htm                                                                                                                                   6/2/11 12:35 PM


 Table of Contents

      Each share of Class B common stock is convertible at any time at the option of the holder into one share of Class A common
 stock. In addition, each share of Class B common stock shall convert automatically into one share of Class A common stock upon any
 transfer, whether or not for value, except for certain transfers described in our certificate of incorporation, including the following:

        •       transfers between holders of Class B common stock; and

        •       transfers for tax and estate planning purposes, including to trusts, corporations and partnerships controlled by a holder
                of Class B common stock.

      Once transferred and converted into Class A common stock, the Class B common stock shall not be reissued. No class of
 common stock may be subdivided or combined unless the other class of common stock concurrently is subdivided or combined in the
 same proportion and in the same manner.

 Preferred Stock

      Upon the closing of this offering, each outstanding share of our Series D preferred stock, Series E preferred stock and Series F
 preferred stock will be converted into approximately six shares of Class A common stock and each outstanding share of our Series G
 preferred stock will be converted into two shares of Class A common stock. In addition, upon the closing of this offering, each share
 of our Series B preferred stock will be converted into six shares of our Class B common stock.

      Following the closing of this offering, our board of directors will have the authority, without approval by the stockholders, to
 issue up to a total of            shares of preferred stock in one or more series. Our board of directors may establish the number of
 shares to be included in each such series and may fix the designations, preferences, powers and other rights of the shares of a series of
 preferred stock. Our board could authorize the issuance of preferred stock with voting or conversion rights that could dilute the voting
 power or rights of the holders of common stock. The issuance of preferred stock, while providing flexibility in connection with
 possible acquisitions and other corporate purposes, could, among other things, have the effect of delaying, deferring or preventing a
 change in control of Groupon and might harm the market price of our common stock. We have no current plans to issue any shares of
 preferred stock.

 Registration Rights

      Pursuant to the terms of the investor rights agreement between us and certain holders of our stock, including certain of our
 directors, officers and holders of 5% or greater of our outstanding capital stock are entitled to demand and piggyback registration
 rights. The stockholders who are party to the investor rights agreement will hold an aggregate of approximately               shares, or
 approximately        % of our Class A common stock, and                shares, or 100% of our Class B common stock, outstanding upon
 completion of this offering (assuming no exercise of the underwriters' over-allotment option). The registration rights described below
 will expire five years after the effective date of the registration statement of which this prospectus forms a part.

      Demand Registration Rights. At any time beginning 180 days after the effective date of the registration statement of which this
 prospectus forms a part, the holders of a majority of the shares of Class A common stock issued upon conversion of our Series G
 preferred stock may, on not more than two occasions, request that we register all or a portion of their shares. Such request for
 registration must cover that number of shares with an aggregate offering price to the public of at least $50 million. We will not be
 required to effect a demand registration during the period beginning on the date of the filing of the registration statement of which this
 prospectus forms a part and ending on the date 180 days after the effective date of the registration statement. Depending on certain
 conditions, we may defer a demand registration for up to 90 days.

     Piggyback Registration Rights. In connection with this offering, the holders of registrable securities are entitled to include their
 shares of registrable securities in this offering. In the event that we propose to

                                                                    121




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                              Page 133 of 269
groupon.htm                                                                                                                                  6/2/11 12:35 PM


 Table of Contents




 register any of our securities under the Securities Act, either for our account or for the account of our other security holders, the
 holders of registrable shares will be entitled to certain "piggyback" registration rights allowing the holder to include their shares in
 such registration, subject to certain marketing and other limitations. As a result, whenever we propose to file a registration under the
 Securities Act, other than with respect to a registration statement on Form S-4 or Form S-8, the holders of these shares are entitled to
 notice of the registration and have the right, subject to limitations that the underwriters may impose on the number of shares included
 in the registration, to include their shares in the registration.

      Form S-3 Registration Rights. Any holder of registrable securities may make a request that we register their shares on Form S-
 3 if we are qualified to file a registration statement on Form S-3 and if the aggregate price to the public is equal to or would exceed
 $25 million. We would not be required to effect more than two registrations on Form S-3 within any 12-month period.

 Elimination of Liability in Certain Circumstances

       Our amended and restated certificate of incorporation eliminates the liability of our directors to us or our stockholders for
 monetary damages resulting from breaches of their fiduciary duties as directors. Directors will remain liable for breaches of their duty
 of loyalty to us or our stockholders, as well as for acts or omissions not in good faith or that involve intentional misconduct or a
 knowing violation of law, and transactions from which a director derives improper personal benefit. Our amended and restated
 certificate of incorporation will not absolve directors of liability for payment of dividends or stock purchases or redemptions by us in
 violation of Section 174 (or any successor provision of the Delaware General Corporation Law).

      The effect of this provision is to eliminate the personal liability of directors for monetary damages for actions involving a breach
 of their fiduciary duty of care, including any such actions involving gross negligence. We do not believe that this provision eliminates
 the liability of our directors to us or our stockholders for monetary damages under the federal securities laws. Our amended and
 restated certificate of incorporation and our amended and restated bylaws provide indemnification for the benefit of our directors and
 officers to the fullest extent permitted by the Delaware General Corporation Law as it may be amended from time to time, including
 most circumstances under which indemnification otherwise would be discretionary.

 Anti-Takeover Effects of Delaware Law, Our Amended and Restated Certificate of Incorporation and Our Amended and
 Restated Bylaws

      Dual Class Structure. Our Class B common stock has           votes per share, while our Class A common stock, which is the class
 of stock we are selling in this offering and which will be the only class of common stock which is publicly traded, has one vote per
 share. After the offering,     % of our Class B common stock will be controlled by our founders, representing          % of the voting
 power of our outstanding capital stock. As a result, our founders will continue to be able to control all matters submitted to our
 stockholders for approval even if they come to owns significantly less than 50% of the shares of our outstanding common stock. This
 concentrated control could discourage others from initiating any potential merger, takeover or other change of control transaction that
 other stockholders may view as beneficial.

      Number of Directors; Removal; Vacancies. Our amended and restated bylaws provide that we shall have nine directors, or such
 other number set by the board of directors. Vacancies on the board of directors may be filled only by the affirmative vote of a majority
 of the remaining directors then in office. Our amended and restated bylaws provide that, subject to the rights of holders of any future
 series of preferred stock, directors may be removed, with or without cause, at meetings of stockholders by the affirmative vote of the
 holders of a majority of the outstanding shares entitled to vote generally in the election of directors.

                                                                   122




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                             Page 134 of 269
groupon.htm                                                                                                                                    6/2/11 12:35 PM


 Table of Contents

      Special Meetings of Stockholders; Limitations on Stockholder Action by Written Consent. Our amended and restated certificate
 of incorporation provides that special meetings of our stockholders may be called only by our Executive Chairman of the Board, our
 Chief Executive Officer, our board of directors or holders of not less than a majority of our issued and outstanding voting stock. Any
 action required or permitted to be taken by our stockholders must be effected at an annual or special meeting of stockholders and may
 not be effected by written consent unless the action to be effected and the taking of such action by written consent have been approved
 in advance by our board of directors.

      Amendments; Vote Requirements. Certain provisions of our amended and restated certificate of incorporation and amended and
 restated bylaws provide that the affirmative vote of a majority of the shares entitled to vote on any matter is required for stockholders
 to amend our amended and restated certificate of incorporation or amended and restated bylaws, including those provisions relating to
 action by written consent and the ability of stockholders to call special meetings.

      Authorized but Unissued Shares; Undesignated Preferred Stock. The authorized but unissued shares of our Class A and Class B
 common stock will be available for future issuance without stockholder approval. These additional shares may be utilized for a
 variety of corporate purposes, including future public offerings to raise additional capital, corporate acquisitions and employee benefit
 plans. In addition, our board of directors may authorize, without stockholder approval, undesignated preferred stock with voting rights
 or other rights or preferences that could impede the success of any attempt to acquire us. The existence of authorized but unissued
 shares of common stock or preferred stock could render it more difficult or discourage an attempt to obtain control of us by means of
 a proxy contest, tender offer, merger or otherwise.

       Advance Notice Requirements for Stockholder Proposals and Nomination of Directors. Our amended and restated bylaws
 provide that stockholders seeking to bring business before an annual meeting of stockholders, or to nominate individuals for election
 as directors at an annual meeting of stockholders, must provide timely notice in writing. To be timely, a stockholder's notice must be
 delivered to or mailed and received at our principal executive offices not less than 60 days nor more than 90 days prior to the
 anniversary date of the immediately preceding annual meeting of stockholders. However, in the event that the annual meeting is called
 for a date that is not within 30 days before or after such anniversary date, such notice will be timely only if received not later than the
 close of business on the tenth day following the date on which notice of the date of the annual meeting was mailed to stockholders or
 made public, whichever first occurs. Our amended and restated bylaws also specify requirements as to the form and content of a
 stockholder's notice.

 Transfer Agent and Registrar

      Upon the closing of this offering, the transfer agent and registrar for our Class A common stock will be                        . The
 transfer agent's address is              , and its telephone number is             .

 Stock Exchange Listing

     We expect to apply to list our Class A common stock listed on the                  under the symbol "GRPN."

                                                                    123




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                               Page 135 of 269
groupon.htm                                                                                                                                    6/2/11 12:35 PM


 Table of Contents


                              MATERIAL UNITED STATES FEDERAL TAX CONSIDERATIONS

      The following discussion describes material U.S. federal income tax consequences associated with the purchase, ownership and
 disposition of our Class A common stock, as of the date of this prospectus. It is assumed in this discussion that you hold shares of our
 Class A common stock as capital assets within the meaning of Section 1221 of the Code. Furthermore, the discussion below is based
 upon the provisions of the Code, its legislative history, the final, temporary and proposed U.S. Treasury regulations promulgated
 thereunder, or the Regulations, and administrative and judicial interpretations thereof, all as of the date of this prospectus, and all of
 which are subject to change or differing interpretation, possibly with retroactive effect, so as to result in different U.S. federal income
 tax consequences than those discussed herein. This discussion does not address any state, local, or non-U.S. tax consequences, nor
 does this discussion address any U.S. federal tax consequences other than U.S. federal income tax consequences.

       This discussion is not a comprehensive discussion of all of the U.S. federal income tax considerations applicable to us or that
 may be relevant to a particular holder of our Class A common stock in view of such holder's particular circumstances and, except to
 the extent provided below, this discussion does not apply to holders of our Class A common stock subject to special treatment under
 the U.S. federal income tax laws, such as banks or other financial institutions, dealers in securities or currencies, tax-exempt
 organizations, retirement plans, individual retirement accounts, tax-deferred accounts, certain former U.S. citizens or long-term
 residents of the U.S., corporations that accumulate earnings to avoid U.S. federal income tax, regulated investment companies, real
 estate investment trusts, insurance companies, mutual funds, persons holding shares as part of a hedge or a position in an integrated or
 conversion transaction, risk reduction transaction, constructive sale transaction or a straddle, traders in securities that elect to use a
 mark-to-market method of accounting for their securities holdings, brokers or dealers in securities or currencies, charitable remainder
 unit trusts, common trust funds, passive foreign investment companies, or controlled foreign corporations. As a general discussion,
 this summary does not address all U.S. federal income tax considerations, including, but not limited to, the Medicare contribution tax
 and the alternative minimum tax and the application of such tax considerations to a holder of our Class A common stock.

      The following discussion also does not address entities that are taxed as grantor trusts under subpart E of subchapter J of the
 Code, disregarded entities for U.S. federal income tax purposes, partnerships or similar entities classified as flow-through entities for
 U.S. federal income tax purposes. If a grantor trust, disregarded entity, partnership or other flow-through entity holds our Class A
 common stock, the tax treatment of such grantor trust, disregarded entity, partnership (or other flow-through entity) and its partners
 (or beneficial owners) will depend on the status of the partner (or beneficial owner) and the activities of the entity. Partnerships,
 grantor trusts, disregarded entities, (and other flow-through entities) and their partners (or beneficial owners) should consult with their
 own tax advisors to determine the tax consequences of acquiring, owning or disposing of our Class A common stock.

      There can be no assurance that the Internal Revenue Service, or the IRS, will not take a contrary position to the discussion of the
 U.S. federal income tax consequences discussed herein or that such position will not be sustained by a court. No ruling from the IRS
 or opinion of counsel has been obtained with respect to the U.S. federal income tax consequences of acquiring, owning, or disposing
 of our Class A common stock.

      Persons considering the purchase, ownership, and disposition of our Class A common stock should consult their own tax
 advisors to determine the U.S. federal, state, local and non-U.S. income tax, tax treaties or other tax (such as estate and gift
 tax laws) consequences of acquiring, owning or disposing our Class A common stock in light of their particular situations.

                                                                    124




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                               Page 136 of 269
groupon.htm                                                                                                                                     6/2/11 12:35 PM


 Table of Contents

 U.S. Holder

     A "U.S. Holder" of our Class A common stock means a holder that is for U.S. federal income tax purposes:

        •       an individual citizen or resident of the U.S. including an alien individual who is a lawful, permanent resident of the
                U.S. or who meets the "substantial presence" test under Section 7701(b) of the Code;

        •       a corporation, or other entity taxable as a corporation for U.S. federal income tax purposes, that was created or
                organized in or under the laws of the U.S., any state thereof or the District of Columbia;

        •       an estate whose income is subject to U.S. federal income taxation regardless of its source;

        •       a trust (i) if it is subject to the supervision of a court within the U.S. and one or more U.S. persons have the authority to
                control all substantial decisions of the trust or (ii) that has a valid election in effect under applicable Regulations to be
                treated as a U.S. person; or

        •       an entity that is disregarded as separate from its owner if all of its interests are owned by a single U.S. Holder, as
                defined above.

      Under the "substantial presence" test referred to above, an individual may, subject to certain exceptions, be deemed to be a
 resident of the U.S. by reason of being present in the U.S. for at least 31 days in the calendar year and for an aggregate of at least
 183 days during the three-year period ending on the last day of the current calendar year (counting for such purposes all of the days
 present in the current year, one-third of the days present in the immediately preceding year and one-sixth of the days present in the
 second preceding year).

 Distributions on Class A Common Stock to U.S. Holder

      In general, any distribution we make to a U.S. Holder with respect to its shares of our Class A common stock that constitutes a
 dividend for U.S. federal income tax purposes will be taxable upon receipt as ordinary income, although possibly at reduced rates, as
 discussed below. A distribution will constitute a dividend for U.S. federal income tax purposes to the extent made out of our current
 or accumulated earnings and profits as determined for U.S. federal income tax purposes. Any distribution not constituting a dividend
 will be treated first as reducing the adjusted basis in the U.S. Holder's shares of our Class A common stock (as applicable) and, to the
 extent such distribution exceeds such basis, will be treated as capital gain from the sale or exchange of such stock.

        Dividends received by corporate U.S. Holders will be eligible for the dividends-received deduction, subject to certain
 restrictions, including restrictions relating to the corporate U.S. Holder's taxable income, holding period and debt financing. Under
 current law, dividends paid to individual U.S. Holders in taxable years beginning before January 1, 2013 will qualify for taxation at
 special rates if certain holding period and other applicable requirements are met. As of the date of this prospectus, such special rates
 will no longer be available, and ordinary income tax rates will apply, to dividends paid in tax years beginning after December 31,
 2012.

      A dividend that exceeds certain thresholds in relation to a U.S. Holder's tax basis in our Class A common stock (as applicable)
 could be characterized as an "extraordinary dividend," as defined under the Code. Generally, a corporate U.S. Holder that receives an
 extraordinary dividend is required to reduce its stock basis by the portion of such dividend that is not taxed because of the dividends-
 received deduction. If the amount of the reduction exceeds such corporate U.S. Holder's tax basis in our Class A common stock (as
 applicable), the excess is treated as taxable gain. If you are a non-corporate U.S. Holder and you receive an extraordinary dividend in
 taxable years beginning before January 1, 2013, you will be required to treat any losses on the sale of our Class A common stock as
 long-term capital losses to the extent of the

                                                                    125




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                                Page 137 of 269
groupon.htm                                                                                                                                   6/2/11 12:35 PM


 Table of Contents




 extraordinary dividends you receive that qualify for the special tax rate on certain dividends described above.

 U.S. Holder's Sale or Exchange of Class A Common Stock

      Upon the sale or other disposition of our Class A common stock, you will generally recognize capital gain or loss equal to the
 difference between the amount realized and your adjusted tax basis in such stock. Such capital gain or loss will generally be long-term
 capital gain or loss if your holding period in respect of the stock is more than one year. Under current law, net long-term capital gains,
 recognized in tax years beginning prior to January 1, 2013 by U.S. Holders who are individuals, are eligible for reduced rates of
 taxation. As of the date of this prospectus, such reduced rates will increase from the current rates for net long-term capital gains
 recognized in tax years beginning after December 31, 2012. The deductibility of capital losses is subject to limitations.

 Information Reporting and Backup Withholding Consequences to U.S. Holder

      U.S. backup withholding (currently at a rate of 28%, but as of the date of this prospectus, scheduled to increase to 31% for
 payments made after December 31, 2012) is imposed on certain payments to persons that fail to furnish the information required
 under the U.S. information reporting requirements. Dividends on our Class A common stock paid to a U.S. Holder will generally be
 exempt from backup withholding, provided the U.S. Holder meets applicable certification requirements, including providing a U.S.
 taxpayer identification number, or otherwise establishes an exemption. We must report annually to the IRS and to each U.S. Holder,
 the amount of dividends paid to that holder and the proceeds from the sale, exchange or other disposition of our Class A common
 stock, unless a U.S. Holder is an exempt recipient.

      Backup withholding does not represent an additional tax. Any amounts withheld from a payment to a U.S. Holder under the
 backup withholding rules will be allowed as a credit against the U.S. Holder's U.S. federal income tax liability and may entitle the
 holder to a refund, provided that the required information or returns are timely furnished by the holder to the IRS.

 Non-U.S. Holder

      As used in this discussion, "Non-U.S. Holder" means a beneficial owner of our Class A common stock, other than a partnership,
 disregarded entity (or an entity or arrangement classified as either a partnership or a disregarded entity for U.S. federal income tax
 purposes), a non-U.S. simple trust or a grantor trust under subpart E of subchapter J of the Code, which is not a U.S. Holder.

 Distributions on Class A Common Stock to Non-U.S. Holder

      Distributions on our Class A common stock, paid to a Non-U.S. Holder, will generally constitute dividends for U.S. federal
 income tax purposes to the extent such distributions are paid from our current or accumulated earnings and profits, as determined
 under U.S. federal income tax principles. If a distribution exceeds our current and accumulated earnings and profits, the excess will be
 treated as a tax-free return of the Non-U.S. Holder's investment to the extent of the Non-U.S. Holder's adjusted tax basis in our
 Class A common stock. Any remaining excess will be treated as capital gain from a sale or disposition of such stock. A Non-U.S.
 Holder's adjusted tax basis is generally the purchase price of our Class A common stock, reduced by the amount of any tax-free return
 of capital. See "U.S. Holder's Sale or Exchange of Class A Common Stock" for additional information.

      Dividends paid to a Non-U.S. Holder generally will be subject to withholding of U.S. federal income tax at a 30% rate or such
 lower rate as may be specified by an applicable income tax treaty. A Non-U.S. Holder of our Class A common stock who wishes to
 claim the benefit of an applicable income tax treaty rate for dividends will be required to (a) complete IRS Form W-8BEN (or
 appropriate substitute form) and certify, under penalty of perjury, that such holder is not a U.S. person (or, in the case of a Non-U.S.

                                                                    126




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                              Page 138 of 269
groupon.htm                                                                                                                                   6/2/11 12:35 PM


 Table of Contents




 Holder that is an estate or trust, such forms certifying the status of each beneficiary of the estate or trust as not a U.S. person, as so
 defined) and is eligible for the benefits allowed by such treaty with respect to dividends or (b) hold our Class A common stock
 through certain non-U.S. intermediaries and satisfy the certification requirements for treaty benefits of applicable Regulations. Special
 certification requirements apply to certain Non-U.S. Holders that act as intermediaries (as well as to certain non-U.S. partnerships
 that act as intermediaries). A Non-U.S. Holder eligible for a reduced rate of U.S. withholding tax pursuant to an income tax treaty
 may obtain a refund of any excess amounts withheld by timely filing an appropriate claim for refund with the IRS.

      This U.S. withholding tax generally will not apply to dividends that are (a) effectively connected with the conduct of a trade or
 business by the Non-U.S. Holder within the U.S., and, (b) in cases in which certain income tax treaties apply, attributable to a U.S.
 permanent establishment or fixed base of the Non-U.S. Holder (collectively "effectively connected dividends"). Effectively connected
 dividends are subject to U.S. federal income tax generally in the same manner as if the Non-U.S. Holder was a U.S. person, as
 defined under the Code. Certain IRS certification and disclosure requirements, including delivery of a properly executed IRS
 Form W-8ECI, must be complied with in order for effectively connected dividends to be exempt from withholding. Any such
 effectively connected dividends received by a Non-U.S. Holder that is a non-U.S. corporation may, under certain circumstances, be
 subject to an additional "branch profits tax" at a 30% rate or such lower rate as may be specified by an applicable income tax treaty.

      The certification requirements described above may require a non-U.S. Holder that provides an IRS W-8 form (or appropriate
 substitute form), or that claims the benefit of an income tax treaty, to also provide its U.S. taxpayer identification number.

      Any applicable IRS Form W-8 (or appropriate substitute form) provided must be received by us (as the withholding agent)
 before the payment of a dividend occurs and the beneficial owner must inform us (as the withholding agent) of any change in the
 information as provided on such IRS Form W-8 (or appropriate substitute form) within 30 days of such change and may be required
 to provide an updated properly executed IRS Form W-8 (or appropriate substitute form) upon its expiration.

 Non-U.S. Holder's Sale or Exchange of Class A Common Stock

     A Non-U.S. Holder generally will not be subject to U.S. federal income tax (or any withholding thereof) with respect to gain
 recognized on a sale or other disposition of our Class A common stock unless:

        •       the gain is effectively connected with a trade or business of the Non-U.S. Holder in the U.S. and, in cases in which
                certain tax treaties apply, is attributable to a U.S. permanent establishment or fixed base of the Non-U.S. Holder
                (collectively, "effectively connected gain");

        •       the Non-U.S. Holder is a nonresident alien individual who is present in the U.S. for 183 or more days during the
                taxable year of disposition and meets certain other requirements; or

        •       we are or have been a "U.S. real property holding corporation" within the meaning of Section 897(c)(2) of the Code,
                also referred to as a USRPHC, for U.S. federal income tax purposes at any time within the five-year period preceding
                the disposition (or, if shorter, the Non-U.S. Holder's holding period for our Class A common stock).

      Effectively connected gain is subject to U.S. federal income tax on a net income basis generally in the same manner as if the
 Non-U.S. Holder were a U.S. person, as defined under the Code. Any such effectively connected gain from the sale or disposition of
 our Class A common stock received by a Non-U.S. Holder that is a non-U.S. corporation may, under certain circumstances, be
 subject to an additional "branch profits tax" at a 30% rate or such lower rate as may be specified by an applicable income tax treaty.

                                                                    127




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                              Page 139 of 269
groupon.htm                                                                                                                                6/2/11 12:35 PM


 Table of Contents

      An individual nonresident alien Non-U.S. Holder who is present in the U.S. for 183 or more days during the taxable year of
 disposition generally will be subject to a 30% tax imposed on the gain derived from the sale or disposition of our Class A common
 stock, which may be offset by U.S. source capital losses realized in the same taxable year.

     We believe that we currently are not a USRPHC, and we do not anticipate becoming a USRPHC for U.S. federal income tax
 purposes. However, no assurances can be provided in this regard.

 Information Reporting and Backup Withholding Consequences to Non-U.S. Holder

     We must report annually to the IRS and to each Non-U.S. Holder the amount of dividends paid to such holder and the tax
 withheld with respect to such dividends, regardless of whether withholding was required. Copies of the information returns reporting
 such dividends and withholding may also be made available to the tax authorities in the country in which the Non-U.S. Holder resides
 under the provisions of an applicable income tax treaty.

      The U.S. imposes a backup withholding tax on dividends and certain other types of payments to U.S. persons, as defined under
 the Code, (currently at a rate of 28%, but as of the date of this prospectus, scheduled to increase to 31% for payments made after
 December 31, 2012) of the gross amount. Dividends paid to a Non-U.S. Holder will not be subject to backup withholding if proper
 certification of non-U.S. status (usually on an IRS Form W-8BEN) is provided, and the payor does not have actual knowledge or
 reason to know that the beneficial owner is a U.S. person, as defined under the Code.

      The payment of the proceeds from the disposition of our Class A common stock to or through the U.S. office of any broker (U.S.
 or non-U.S.) will be subject to information reporting and possible backup withholding unless the Non-U.S. Holder certifies as to such
 holder's non-U.S. status under penalties of perjury or otherwise establishes an exemption and the broker does not have actual
 knowledge or reason to know that the Non-U.S. Holder is a U.S. person, as defined under the Code, or that the conditions of another
 exemption are not, in fact, satisfied. The payment of proceeds from the disposition of our Class A common stock to or through a non-
 U.S. office of a non-U.S. broker will not be subject to information reporting or backup withholding unless the non-U.S. broker has
 certain types of relationships with the U.S. (a "U.S. related financial intermediary"). In the case of the payment of proceeds from the
 disposition of our Class A common stock to or through a non-U.S. office of a broker that is either a U.S. person (as defined under the
 Code) or a U.S. related financial intermediary, the U.S. Treasury regulations require information reporting (but not backup
 withholding) on the payment unless the broker has documentary evidence in its files that the beneficial owner is a Non-U.S. person,
 as defined under the Code and the broker has no knowledge to the contrary.

     Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against such Non-U.S. Holder's
 U.S. federal income tax liability, provided the required information is timely furnished to the IRS.

 Recently Enacted Withholding and Information Reporting Legislation Applicable to U.S. and Non-U.S. Holders

      Newly enacted legislation may impose withholding taxes on certain types of payments made to "foreign financial institutions," as
 defined under the Code, and certain other non-U.S. entities after December 31, 2012. The legislation imposes a 30% withholding tax
 on dividends on, or gross proceeds from the sale or other disposition of, our Class A common stock paid to a foreign financial
 institution, unless the foreign financial institution enters into an agreement with the U.S. Treasury to, among other things, undertake
 to identify accounts held by certain U.S. persons, as defined under the Code (including certain equity and debt holders of such
 institutions), or U.S.-owned foreign entities, annually report certain information about such accounts, and withhold 30% on payments
 to account holders whose actions prevent it from complying with these reporting and other requirements. Foreign financial institutions
 for

                                                                  128




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                           Page 140 of 269
groupon.htm                                                                                                                                 6/2/11 12:35 PM


 Table of Contents




 this purpose include non-U.S. entities that are financial institutions, mutual funds (or their foreign equivalent), funds of funds (and
 other similar investments), exchange-traded funds, hedge funds, private equity and venture capital funds, other managed funds,
 commodity pools, and other investment vehicles. In addition, the legislation imposes a 30% withholding tax on the same types of
 payments made to a "non-financial foreign entity," as defined under the Code, unless the entity certifies that it does not have any
 "substantial U.S. owners" (which generally includes any U.S. person that directly or indirectly owns more than 10%, by vote or by
 value) or furnishes identifying information regarding each substantial U.S. owner. Additionally, in taxable years beginning after
 March 18, 2010, certain U.S. Holders, which hold our Class A common stock through certain foreign financial institutions or foreign
 accounts maintained by such foreign financial institutions, may be required to file an information report (along with their tax returns)
 with respect to such assets, to the extent the U.S. Holder owns "specified foreign financial assets" with an aggregate value in excess
 of $50,000 in the relevant taxable year. "Specified foreign financial assets" include any financial accounts maintained by foreign
 financial institutions, including, but not limited to, any custodial account maintained by such financial institution. Prospective
 investors should consult their own tax advisors regarding this legislation.

                                                                   129




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                            Page 141 of 269
groupon.htm                                                                                                                                    6/2/11 12:35 PM


 Table of Contents


                                              SHARES ELIGIBLE FOR FUTURE SALE

     Prior to this offering, there has been no public market for shares of our Class A common stock. Future sales of substantial
 amounts of shares of our Class A common stock, including shares issued upon the exercise of outstanding options, in the public
 market after this offering, or the possibility of these sales occurring, could adversely affect the prevailing market price for our Class A
 common stock from time to time or impair our ability to raise equity capital in the future.

      Based on the number of shares outstanding as of               , 2011, upon the completion of this offering,        shares of common
 stock will be outstanding, assuming no exercise of the underwriters' overallotment option and no exercise of outstanding options or
 warrants. Of the outstanding shares,                 shares sold in this offering will be freely tradable, except that any shares acquired
 by our affiliates, as that term is defined in Rule 144 under the Securities Act, in this offering may only be sold in compliance with the
 limitations described below.

      The remaining         shares of Class A common stock outstanding after this offering will be restricted as a result of securities
 laws, the investor rights agreement or lock-up agreements as described below. Following the expiration of the lock-up period, all
 shares will be eligible for resale in compliance with Rule 144 or Rule 701 to the extent such shares have been released from any
 repurchase option that we may hold. "Restricted securities" as defined under Rule 144 were issued and sold by us in reliance on
 exemptions from the registration requirements of the Securities Act. These shares may be sold in the public market only if registered
 or pursuant to an exemption from registration, such as Rule 144 or Rule 701 under the Securities Act.

 Lock-Up Agreements

      Pursuant to the terms of an investor rights agreement between us and certain holders of our stock, including certain of our
 directors, officers and holders of 5% or greater of our outstanding capital stock, such holders have agreed that they will not, during the
 period ending 180 days after the date of this prospectus, sell, transfer, make any short sale of, grant any option for the purchase of, or
 enter into any hedging or similar transaction with the same economic event as a sale, any shares of our common stock or other
 securities of the Company, provided, that all of our directors, officers and holders of 1% of our voting securities are bound by and
 have entered into similar agreements. This agreement is subject to certain exceptions, and is also subject to extension for up to an
 additional 18 days, as we and the underwriters may reasonably request. The stockholders who are party to the investor rights
 agreement will hold an aggregate of approximately                  shares, or approximately          % of our Class A common stock,
 and        shares, or 100% of our Class B common stock, outstanding upon completion of this offering (assuming no exercise of the
 underwriters' over-allotment option).

       In connection with this offering, officers, directors, employees and stockholders, who together hold substantially all of our
 outstanding stock and stock options, have agreed, subject to limited exceptions, not to directly or indirectly sell or dispose of any
 shares of our common stock or any securities convertible into or exchangeable or exercisable for shares of our common stock for a
 period of 180 days after the date of this prospectus (or such earlier date or dates as agreed between us and Morgan
 Stanley & Co. LLC), and in specific circumstances, up to an additional 34 days, without the prior written consent of Morgan
 Stanley & Co. LLC on behalf of the underwriters. For additional information, see "Underwriting."

 Rule 144

      In general, under Rule 144 as currently in effect, once we have been subject to public company reporting requirements for at least
 90 days, a person who is not deemed to have been one of our affiliates for purposes of the Securities Act at any time during 90 days
 preceding a sale and who has beneficially owned the shares proposed to be sold for at least six months, including the holding period
 of any prior owner other than our affiliates, is entitled to sell such shares without complying with the manner of sale,

                                                                    130




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                               Page 142 of 269
groupon.htm                                                                                                                                      6/2/11 12:35 PM


 Table of Contents



 volume limitation or notice provisions of Rule 144, subject to compliance with the public information requirements of Rule 144. If
 such a person has beneficially owned the shares proposed to be sold for at least one year, including the holding period of any prior
 owner other than our affiliates, then such person is entitled to sell such shares without complying with any of the requirements of
 Rule 144.

      In general, under Rule 144, as currently in effect, our affiliates or persons selling shares on behalf of our affiliates are entitled to
 sell upon expiration of the lock-up agreements described above, within any three-month period beginning 90 days after the date of this
 prospectus, a number of shares that does not exceed the greater of:

         •       1% of the number of shares of common stock then outstanding, which will equal approximately                           shares
                 immediately after this offering; or

         •       the average weekly trading volume of the common stock during the four calendar weeks preceding the filing of a
                 notice on Form 144 with respect to such sale.

      Sales under Rule 144 by our affiliates or persons selling shares on behalf of our affiliates are also subject to certain manner of
 sale provisions and notice requirements and to the availability of current public information about us.

 Rule 701

      Rule 701 generally allows a stockholder who purchased shares of our common stock pursuant to a written compensatory plan or
 contract and who is not deemed to have been an affiliate of our company during the immediately preceding 90 days to sell these
 shares in reliance upon Rule 144, but without being required to comply with the public information, holding period, volume
 limitation, or notice provisions of Rule 144. Rule 701 also permits affiliates of our company to sell their Rule 701 shares under
 Rule 144 without complying with the holding period requirements of Rule 144. All holders of Rule 701 shares, however, are required
 to wait until 90 days after the date of this prospectus before selling such shares pursuant to Rule 701.

 Registration Rights

      Upon completion of this offering, the holders of          shares of our Class A common stock and               shares of our Class B
 common stock or their transferees will be entitled to various rights with respect to the registration of these shares under the Securities
 Act. Registration of these shares under the Securities Act would result in these shares becoming fully tradable without restriction
 under the Securities Act immediately upon the effectiveness of the registration, except for shares purchased by affiliates. See
 "Description of Capital Stock—Registration Rights" for additional information. Shares covered by a registration statement will be
 eligible for sales in the public market upon the expiration or release from the terms of the investor rights agreement or the lock-up
 agreement, as applicable.

 Registration Statements

       We intend to file a registration statement on Form S-8 under the Securities Act following this offering to register all of the shares
 of Class A common stock issued or reserved for issuance under our 2008 Stock Option Plan and our 2010 Stock Plan. We expect to
 file this registration statement as soon as practicable after this offering. Shares covered by this registration statement will be eligible
 for sale in the public market, upon the expiration or release from the terms of the lock-up agreements, and subject to vesting of such
 shares.

                                                                     131




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                                 Page 143 of 269
groupon.htm                                                                                                                                  6/2/11 12:35 PM


 Table of Contents


                                                          UNDERWRITING

      Under the terms and subject to the conditions in an underwriting agreement dated the date of this prospectus, the underwriters
 named below, for whom Morgan Stanley & Co. LLC, Goldman, Sachs & Co. and Credit Suisse Securities (USA) LLC are acting as
 representatives, have severally agreed to purchase, and we and the selling stockholders have agreed to sell to them, severally, the
 number of shares indicated below:

                                                                                                 Number of
                            Name                                                                  Shares
                            Morgan Stanley & Co. LLC
                            Goldman, Sachs & Co.
                            Credit Suisse Securities (USA) LLC




                              Total

      The underwriters and the representatives are collectively referred to as the "underwriters" and the "representatives," respectively.
 The underwriters are offering the shares of Class A common stock subject to their acceptance of the shares from us and subject to
 prior sale. The underwriting agreement provides that the obligations of the several underwriters to pay for and accept delivery of the
 shares of Class A common stock offered by this prospectus are subject to the approval of certain legal matters by their counsel and to
 certain other conditions. The underwriters are obligated to take and pay for all of the shares of Class A common stock offered by this
 prospectus if any such shares are taken. However, the underwriters are not required to take or pay for the shares covered by the
 underwriters' over-allotment option described below. If an underwriter defaults, the underwriting agreement provides that the
 purchase commitments of the non-defaulting underwriters may be increased, or, in the case of a default with respect to the shares
 covered by the underwriters' over-allotment described below, the underwriting agreement may be terminated.

      The underwriters initially propose to offer part of the shares of Class A common stock directly to the public at the offering price
 listed on the cover page of this prospectus and part to certain dealers at a price that represents a concession not in excess of
 $        per share under the public offering price. Any underwriter may allow, and such dealers may reallow, a concession not in
 excess of $         per share to other underwriters or to certain dealers. After the initial offering of the shares of Class A common
 stock, the offering price and other selling terms may from time to time be varied by the representatives.

       We and the selling stockholders have granted to the underwriters an option, exercisable for 30 days from the date of this
 prospectus, to purchase up to       additional shares of Class A common stock at the public offering price listed on the cover page of
 this prospectus, less underwriting discounts and commissions. The underwriters may exercise this option solely for the purpose of
 covering over-allotments, if any, made in connection with the offering of the shares of Class A common stock offered by this
 prospectus. To the extent the option is exercised, each underwriter will become obligated, subject to certain conditions, to purchase
 the same percentage of the additional shares of Class A common stock as the number listed next to the underwriter's name in the
 preceding table bears to the total number of shares of Class A common stock listed next to the names of all underwriters in the
 preceding table.

     The following table shows the per share and total public offering price, underwriting discounts and commissions, and proceeds
 before expenses to us and the selling stockholders. These amounts are shown

                                                                   132




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                             Page 144 of 269
groupon.htm                                                                                                                                        6/2/11 12:35 PM


 Table of Contents



 assuming both no exercise and full exercise of the underwriters' option to purchase up to an additional                       shares of Class A
 common stock.

                                                                                                          Total
                                                                                                           No             Full
                                                                                            Share        Exercise       Exercise
              Public offering price                                                     $            $              $
              Underwriting discounts and commissions to be paid by:
                Us                                                                      $            $              $
                The selling stockholders                                                $            $              $
              Proceeds, before expenses, to us                                          $            $              $
              Proceeds, before expenses, to selling stockholders                        $            $              $

     The estimated offering expenses payable by us, exclusive of the underwriting discounts and commissions, are approximately
 $      million.

      The underwriters have informed us that they do not intend sales to discretionary accounts to exceed 5% of the total number of
 shares of Class A common stock offered by them.

     We have applied to list our Class A common stock on                    under the trading symbol "GRPN."

     We and all directors and officers and the holders of substantially all of our outstanding stock and stock options have agreed that,
 without the prior written consent of Morgan Stanley & Co. LLC on behalf of the underwriters, and subject to certain exceptions, we
 and they will not, during the period ending 180 days after the date of this prospectus (or such earlier date or dates as agreed between
 us and Morgan Stanley & Co. LLC):

        •       offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant
                any option, right or warrant to purchase, lend or otherwise transfer or dispose of directly or indirectly, any shares of
                common stock beneficially owned or any other securities convertible into or exercisable or exchangeable for common
                stock;

        •       enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic
                consequences of ownership of the common stock, whether any such transaction described in the immediately preceding
                bullet or this bullet is to be settled by delivery of our common stock or such other securities, in cash or otherwise;

        •       engage in any short selling of our common stock or securities convertible into or exercisable or exchangeable for our
                common stock; or

        •       make any demand for, or exercise any right with respect to, the registration of any shares of common stock or any
                security convertible into or exercisable or exchangeable for common stock.

 In addition, we and all directors and officers and the holders of substantially all of our outstanding stock and stock options have agreed
 that, without the prior written consent of Morgan Stanley & Co. LLC on behalf of the underwriters, and subject to certain exceptions,
 we and they will not, during the period ending 180 days after the date of this prospectus (or such earlier date or dates as agreed
 between us and Morgan Stanley & Co. LLC), file any registration statement with the SEC relating to the offering of any shares of
 common stock or any securities convertible into or exercisable or exchangeable for common stock. The restrictions described in this
 paragraph do not apply to:

        •       sales of our common stock to the underwriters;

        •       transactions relating to shares of our common stock or other securities acquired in connection with this offering open
                market transactions after the completion of this offering, provided that no filing under Section 16(a) of the Exchange
                Act is required or is voluntarily made in connection with

                                                                    133




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                                   Page 145 of 269
groupon.htm                                                                                                                                   6/2/11 12:35 PM


 Table of Contents

                subsequent sales of shares of our common stock or other securities acquired in such open market transactions;

        •       transfers of shares of our common stock or any security convertible into shares of our common stock as a bona fide
                gift or gifts;

        •       distributions of shares of our common stock or any security convertible into our common stock to partners, members
                or stockholders of a security holder;

        •       distributions or transfers by a security holder of shares of our common stock or any security convertible into our
                common stock to any trust, partnership, limited liability company or other entity for the direct or indirect benefit of the
                security holder or its immediate family;

        •       transfers by a security holder of shares of our common stock to any beneficiary of the security holder pursuant to a
                will or other testamentary document or applicable laws of descent;

        •       transfers by a security holder of shares of our common stock to us (including, without limitation, any transfer in
                accordance with the terms of the recapitalization agreement to be entered into by us and all or certain of our
                stockholders in connection with this offering);

        •       exercises of any options to purchase our common stock that have been granted by us prior to the date hereof where the
                shares of our common stock received upon such exercise are held by a security holder, individually or as a fiduciary, in
                accordance with and subject to the terms of the lock-up letter signed by us and the holders of our outstanding stock and
                stock options; or

        •       the establishment of a trading plan pursuant to Rule 10b5-1 under the Exchange Act for the transfer of shares of our
                common stock, provided that such plan does not provide for the transfer of our shares of common stock during the
                restricted period and no public announcement or filing under the Exchange Act regarding the establishment of such
                plan shall be required of or voluntarily made by or on behalf of us or the security holder.

 In the case of any transfer or distribution pursuant to the third, fourth and fifth bullet immediately above, (i) each done, transferee or
 distributee must sign and deliver a lock-up letter substantially in the form of the lock-up letter signed by us and the holders of our
 outstanding stock and stock options, (ii) any such transfer must not involve a disposition for value, and (iii) no filing under
 Section 16(a) of the Exchange Act, reporting a reduction in beneficial ownership of shares of our common stock, is required or shall
 be voluntarily made during the 180-day restricted period.

     The 180-day restricted period described in the preceding paragraph will be extended if:

        •       during the last 17 days of the 180-day restricted period, we issue an earnings release or a material news event relating
                to us occurs, or

        •       prior to the expiration of the 180-day restricted period, we announce that we will release earnings results during the
                16-day period beginning on the last day of the 180-day period,

 in which case the restrictions described in the preceding paragraph will continue to apply until the expiration of the 18-day period
 beginning on the issuance of the earnings release or the occurrence of the material news or material event.

       In order to facilitate the offering of our Class A common stock, the underwriters may engage in transactions that stabilize,
 maintain or otherwise affect the price of our Class A common stock. Specifically, the underwriters may over-allot in connection with
 the offering, creating a short position in the Class A common stock for their own accounts. In addition, to cover over-allotments or to
 stabilize the price of the Class A common stock, the underwriters may bid for, and purchase, shares of Class A common stock in the
 open market to stabilize the price of the Class A common stock. Finally, the underwriting syndicate may reclaim selling concessions
 allowed to an underwriter or a dealer for distributing the Class A

                                                                    134




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                              Page 146 of 269
groupon.htm                                                                                                                                  6/2/11 12:35 PM


 Table of Contents



 common stock in the offering, if the syndicate repurchases previously distributed Class A common stock in transactions to cover
 syndicate short positions, in stabilization transactions or otherwise. Any of these activities may stabilize or maintain the market price
 of the Class A common stock above independent market levels or prevent or retard a decline in the market price of the Class A
 common stock. The underwriters are not required to engage in these activities and may end any of these activities at any time.

     The underwriters may also impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of
 the underwriting discount received by it because the representatives have repurchased shares sold by or for the account of such
 underwriter in stabilizing or short covering transactions.

        We, the selling stockholders and the underwriters have agreed to indemnify each other against certain liabilities, including
 liabilities under the Securities Act, or to contribute to payments the underwriters may be required to make because of any of these
 liabilities.

     A prospectus in electronic format may be made available on websites maintained by one or more underwriters, or selling group
 members, if any, participating in this offering. The representatives may agree to allocate a number of shares of Class A common stock
 to underwriters for sale to their online brokerage account holders. Internet distributions will be allocated by the representatives to
 underwriters that may make internet distributions on the same basis as other allocations.

      The underwriters and their respective affiliates are full service financial institutions engaged in various activities, which may
 include securities trading, commercial and investment banking, financial advisory, investment management, investment research,
 principal investment, hedging, financing and brokerage activities. Certain of the underwriters and their respective affiliates have, from
 time to time, performed, and may in the future perform, various financial advisory and investment banking services for the issuer, for
 which they received or will receive customary fees and expenses.

      In the ordinary course of their various business activities, the underwriters and their respective affiliates may make or hold a
 broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments
 (including bank loans) for their own account and for the accounts of their customers, and such investment and securities activities may
 involve securities and/or instruments of the issuer. The underwriters and their respective affiliates may also make investment
 recommendations and/or publish or express independent research views in respect of such securities or instruments and may at any
 time hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments.

 Pricing of the Offering

       Prior to this offering, there has been no public market for our Class A common stock. The initial public offering price will be
 determined by negotiations between us and the representatives. Among the factors to be considered in determining the initial public
 offering price will be the future prospects and those of our industry in general, our revenue, earnings and certain other financial and
 operating information in recent periods, and the price-earnings ratios, price-sales ratios, market prices of securities, and certain
 financial and operating information of companies engaged in activities similar to ours. The estimated initial public offering price
 range set forth on the cover page of this preliminary prospectus is subject to change as a result of market conditions and other factors.
 We cannot assure you that the prices at which the shares will sell in the public market after this offering will not be lower than the
 initial public offering price or that an active trading market in our Class A common stock will develop and continue after this
 offering.

                                                                   135




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                             Page 147 of 269
groupon.htm                                                                                                                               6/2/11 12:35 PM


 Table of Contents

 European Economic Area

      In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive, each, a
 Relevant Member State, an offer to the public of any shares of our Class A common stock may not be made in that Relevant Member
 State, except that an offer to the public in that Relevant Member State of any shares of our Class A common stock may be made at
 any time under the following exemptions under the Prospectus Directive, if they have been implemented in that Relevant Member
 State:

              (a) to any legal entity which is a qualified investor as defined in the Prospectus Directive;

             (b) to fewer than 100 or, if the Relevant Member State has implemented the relevant provision of the 2010 PD
        Amending Directive, 150, natural or legal persons (other than qualified investors as defined in the Prospectus Directive), as
        permitted under the Prospectus Directive, subject to obtaining the prior consent of the representatives for any such offer; or

             (c) in any other circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer of
        shares of our Class A common stock shall result in a requirement for the publication by us or any underwriter of a prospectus
        pursuant to Article 3 of the Prospectus Directive.

      For the purposes of this provision, the expression an "offer to the public" in relation to any shares of our Class A common stock
 in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the
 offer and any shares of our Class A common stock to be offered so as to enable an investor to decide to purchase any shares of our
 Class A common stock, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in
 that Member State, the expression "Prospectus Directive" means Directive 2003/71/EC (and amendments thereto, including the 2010
 PD Amending Directive, to the extent implemented in the Relevant Member State), and includes any relevant implementing measure
 in the Relevant Member State, and the expression "2010 PD Amending Directive" means Directive 2010/73/EU.

 United Kingdom

     Each underwriter has represented and agreed that:

             (a) it has only communicated or caused to be communicated and will only communicate or cause to be communicated
        an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the FSMA) received by it in
        connection with the issue or sale of the shares of our Class A common stock in circumstances in which Section 21(1) of the
        FSMA does not apply to us; and

              (b) it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in
        relation to the shares of our Class A common stock in, from or otherwise involving the United Kingdom.

 Hong Kong, Singapore and Japan

      The shares may not be offered or sold by means of any document other than (i) in circumstances which do not constitute an offer
 to the public within the meaning of the Companies Ordinance (Cap.32, Laws of Hong Kong), or (ii) to "professional investors" within
 the meaning of the Securities and Futures Ordinance (Cap.571, Laws of Hong Kong) and any rules made thereunder, or (iii) in other
 circumstances which do not result in the document being a "prospectus" within the meaning of the Companies Ordinance (Cap.32,
 Laws of Hong Kong), and no advertisement, invitation or document relating to the shares may be issued or may be in the possession
 of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of
 which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the laws of Hong Kong) other
 than with respect to shares which are or are intended to be disposed of only to persons outside Hong Kong or only to

                                                                    136




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                          Page 148 of 269
groupon.htm                                                                                                                                        6/2/11 12:35 PM


 Table of Contents



 "professional investors" within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules
 made thereunder.

      This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus
 and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the shares may
 not be circulated or distributed, nor may the shares be offered or sold, or be made the subject of an invitation for subscription or
 purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the
 Securities and Futures Act, Chapter 289 of Singapore (the "SFA"), (ii) to a relevant person, or any person pursuant to
 Section 275(1A), and in accordance with the conditions, specified in Section 275 of the SFA or (iii) otherwise pursuant to, and in
 accordance with the conditions of, any other applicable provision of the SFA.

      Where the shares are subscribed or purchased under Section 275 by a relevant person which is: (a) a corporation (which is not an
 accredited investor) the sole business of which is to hold investments and the entire share capital of which is owned by one or more
 individuals, each of whom is an accredited investor; or (b) a trust (where the trustee is not an accredited investor) whose sole purpose
 is to hold investments and each beneficiary is an accredited investor, shares, debentures and units of shares and debentures of that
 corporation or the beneficiaries' rights and interest in that trust shall not be transferable for 6 months after that corporation or that trust
 has acquired the shares under Section 275 except: (1) to an institutional investor under Section 274 of the SFA or to a relevant person,
 or any person pursuant to Section 275(1A), and in accordance with the conditions, specified in Section 275 of the SFA; (2) where no
 consideration is given for the transfer; or (3) by operation of law.

       The securities have not been and will not be registered under the Financial Instruments and Exchange Law of Japan (the
 Financial Instruments and Exchange Law) and each underwriter has agreed that it will not offer or sell any securities, directly or
 indirectly, in Japan or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in Japan,
 including any corporation or other entity organized under the laws of Japan), or to others for re-offering or resale, directly or
 indirectly, in Japan or to a resident of Japan, except pursuant to an exemption from the registration requirements of, and otherwise in
 compliance with, the Financial Instruments and Exchange Law and any other applicable laws, regulations and ministerial guidelines
 of Japan.

                                                                      137




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                                   Page 149 of 269
groupon.htm                                                                                                                                   6/2/11 12:35 PM


 Table of Contents


                                                          LEGAL MATTERS

      The validity of the shares of Class A common stock offered hereby will be passed upon for us by Winston & Strawn LLP,
 Chicago, Illinois. DLA Piper LLP (US), East Palo Alto, California, is acting as counsel to the underwriters. DLA Piper LLP (US) has
 in the past provided, and continues to provide, legal services to Groupon.


                                                               EXPERTS

      The consolidated financial statements of Groupon, Inc. at December 31, 2009 and 2010, and for each of the three years in the
 period ended December 31, 2010, appearing in this Prospectus and Registration Statement have been audited by Ernst & Young LLP,
 independent registered public accounting firm, as set forth in their report thereon appearing elsewhere herein, and are included in
 reliance upon such report given on the authority of such firm as experts in accounting and auditing.

     The consolidated financial statements of CityDeal Europe GmbH for the period from January 1, 2010 to May 15, 2010, appearing
 in this Prospectus and Registration Statement have been audited by Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft,
 independent auditors, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report
 given on the authority of such firm as experts in accounting and auditing.

      The financial statements of Qpod.inc for the period from June 4, 2010 to August 11, 2010, appearing in this Prospectus and
 Registration Statement have been audited by Ernst & Young ShinNihon LLC, independent auditors, as set forth in their report thereon
 appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting
 and auditing.


                                    WHERE YOU CAN FIND ADDITIONAL INFORMATION

      We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the shares of common
 stock offered hereby. This prospectus, which constitutes a part of the registration statement, does not contain all of the information set
 forth in the registration statement or the exhibits and schedules filed therewith. For further information about us and the common
 stock offered hereby, we refer you to the registration statement and the exhibits and schedules filed thereto. Statements contained in
 this prospectus regarding the contents of any contract or any other document that is filed as an exhibit to the registration statement are
 not necessarily complete, and each such statement is qualified in all respects by reference to the full text of such contract or other
 document filed as an exhibit to the registration statement. Following this offering, we will be required to file periodic reports, proxy
 statements, and other information with the SEC pursuant to the Securities Exchange Act of 1934. You may read and copy this
 information at the Public Reference Room of the SEC, 100 F Street, N.E., Room 1580, Washington, D.C. 20549. You may obtain
 information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a
 website that contains reports, proxy statements and other information about issuers, like us, that file electronically with the SEC. The
 address of that site is www.sec.gov.

                                                                    138




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                              Page 150 of 269
groupon.htm                                                                                                       6/2/11 12:35 PM


 Table of Contents


                                                           Table of Contents

                                                          Groupon, Inc.
                                                 Consolidated Financial Statements
                     As of December 31, 2009 and 2010 and for the Years Ended December 31, 2008, 2009 and 2010

              Consolidated Financial Statements

              Report of Independent Registered Public Accounting Firm                                       F-3

              Consolidated Balance Sheets                                                                   F-4

              Consolidated Statements of Operations                                                         F-5

              Consolidated Statements of Stockholders' (Deficit) Equity                                     F-6

              Consolidated Statements of Cash Flows                                                         F-7

              Notes to Consolidated Financial Statements                                                    F-8

                                                        Groupon, Inc.
                                     Condensed Consolidated Financial Statements (Unaudited)
                                         Three Months Ended March 31, 2010 and 2011

              Condensed Consolidated Financial Statements (Unaudited)

              Condensed Consolidated Balance Sheets (Unaudited)                                            F-47

              Condensed Consolidated Statements of Operations (Unaudited)                                  F-48

              Condensed Consolidated Statement of Stockholders' Equity (Unaudited)                         F-49

              Condensed Consolidated Statements of Cash Flows (Unaudited)                                  F-50

              Notes to Condensed Consolidated Financial Statements (Unaudited)                             F-51

                                                      CityDeal Europe GmbH
                                                   Consolidated Financial Statements
                                                     Period Ended May 15, 2010

              Consolidated Financial Statements

              Report of Independent Auditors                                                               F-75

              Consolidated Statement of Operations and Consolidated Statement of Comprehensive Loss        F-76

              Consolidated Statement of Cash Flows                                                         F-77

              Notes to Consolidated Financial Statements                                                   F-78

                                                                  F-1




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                  Page 151 of 269
groupon.htm                                                                                              6/2/11 12:35 PM


 Table of Contents

                                                              Qpod.inc
                                                   Consolidated Financial Statements
                                                    Period Ended August 11, 2010

              Financial Statements

              Report of Independent Auditors                                                      F-88

              Statement of Operations                                                             F-89

              Statement of Stockholders' Equity                                                   F-90

              Statement of Cash Flows                                                             F-91

              Notes to Financial Statements                                                       F-92

                                                     Groupon, Inc.
                               Pro Forma Condensed Consolidated Financial Statement (Unaudited)
                                               Year Ended December 31, 2010

              Pro Forma Condensed Consolidated Statement of Operations (Unaudited)                F-97

              Notes to Pro Forma Condensed Consolidated Statement of Operations (Unaudited)       F-99

                                                                F-2




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                         Page 152 of 269
groupon.htm                                                                                                                                6/2/11 12:35 PM


 Table of Contents


                                    Report of Independent Registered Public Accounting Firm

     The Board of Directors and Stockholders of Groupon, Inc.

       We have audited the accompanying consolidated balance sheets of Groupon, Inc. as of December 31, 2009 and 2010, and the
 related consolidated statements of operations, stockholders' (deficit) equity, and cash flows for each of the three years in the period
 ended December 31, 2010. These financial statements are the responsibility of the Company's management. Our responsibility is to
 express an opinion on these financial statements based on our audits.

      We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
 Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are
 free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial reporting.
 Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are
 appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal
 control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence
 supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates
 made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
 basis for our opinion.

       In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial
 position of Groupon, Inc. at December 31, 2009 and 2010, and the consolidated results of its operations and its cash flows for each of
 the three years in the period ended December 31, 2010, in conformity with U.S. generally accepted accounting principles.

 /s/ Ernst & Young LLP
 Chicago, Illinois
 June 2, 2011

                                                                  F-3




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                           Page 153 of 269
groupon.htm                                                                                                                                          6/2/11 12:35 PM


 Table of Contents


                                                                     GROUPON, INC.

                                                      CONSOLIDATED BALANCE SHEETS

                                                           (in thousands, except share data)

                                                                                                                             December 31,
                                                                                                                           2009        2010
              Assets
              Current assets:
               Cash and cash equivalents                                                                               $    12,313   $   118,833
               Accounts receivable, net                                                                                       601         42,407
               Prepaid expenses and other current assets                                                                     1,293        12,615

                  Total current assets                                                                                      14,207       173,855
              Property and equipment, net                                                                                      274        16,490
              Goodwill                                                                                                          —        132,038
              Intangible assets, net                                                                                           239        40,775
              Deferred income taxes, non-current                                                                                —         14,544
              Other non-current assets                                                                                         242         3,868

                 Total Assets                                                                                          $    14,962   $   381,570
              Liabilities and Stockholders' (Deficit) Equity
              Current liabilities:
               Accounts payable                                                                                        $      182    $    57,543
               Accrued merchant payable                                                                                      4,324       162,409
               Accrued expenses                                                                                              4,836        98,323
               Due to related parties                                                                                          —          13,321
               Deferred income taxes, current                                                                                  —          17,210
               Other current liabilities                                                                                      877         21,613

                 Total current liabilities                                                                                  10,219       370,419
              Deferred income taxes, non-current                                                                                —            604
              Other non-current liabilities                                                                                     —          1,017

                 Total Liabilities                                                                                          10,219       372,040
              Commitments and contingencies (see Note 7)

              Series B, redeemable convertible preferred stock $.0001 par value, 199,998 shares authorized, issued
                and outstanding at December 31, 2009 and 0 shares authorized, issued and outstanding at
                December 31, 2010                                                                                              20             —
              Series D, redeemable convertible preferred stock $.0001 par value, 6,560,174 shares authorized, issued
                and outstanding at December 31, 2009 and 0 shares authorized, issued and outstanding at
                December 31, 2010                                                                                            4,727            —
              Series E, redeemable convertible preferred stock $.0001 par value, 4,406,160 shares authorized, issued
                and outstanding at December 31, 2009 and 0 shares authorized, issued and outstanding at
                December 31, 2010                                                                                           29,965            —
              Redeemable noncontrolling interests                                                                               —          2,983

              Groupon, Inc. Stockholders' (Deficit) Equity

              Series B, convertible preferred stock $.0001 par value, 0 shares authorized, issued and outstanding at
                December 31, 2009 and 199,998 shares authorized, issued and outstanding at December 31, 2010                   —              —
              Series D, convertible preferred stock $.0001 par value, 0 shares authorized, issued and outstanding at
                December 31, 2009 and 6,560,174 shares authorized and issued, and 6,258,297 shares outstanding at
                December 31, 2010                                                                                              —                1
              Series E, convertible preferred stock $.0001 par value, 0 shares authorized, issued and outstanding at
                December 31, 2009 and 4,406,160 shares authorized and issued, and 4,127,653 shares outstanding at
                December 31, 2010                                                                                              —              —
              Series F, convertible preferred stock $.0001 par value, 0 shares authorized, issued and outstanding at
                December 31, 2009 and 4,202,658 shares authorized, issued and outstanding at December 31, 2010                 —                1
              Series G, convertible preferred stock $.0001 par value, 0 shares authorized, issued and outstanding at
                December 31, 2009 and 30,075,690 shares authorized and 14,245,018 shares issued and outstanding
                at December 31, 2010, liquidation preference of $450,000                                                       —                1
              Voting common stock, $.0001 par value, 500,000,000 shares authorized, 170,095,998 shares issued and
                outstanding at December 31, 2009, and 211,495,998 shares issued and 165,616,260 shares
                outstanding at December 31, 2010                                                                                 3              4

              Non-voting convertible common stock, $.0001 par value, 100,000,000 shares authorized, 2,850,498
                shares issued and outstanding at December 31, 2009, and 5,864,486 shares issued and 5,079,896
                shares outstanding at December 31, 2010                                                                        —               —
              Treasury stock, at cost, 0 shares at December 31, 2009 and 46,664,328 shares at December 31, 2010                —         (503,173)
              Additional paid-in capital                                                                                       —          921,122
              Stockholder receivable                                                                                         (144)           (286)


file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                                     Page 154 of 269
groupon.htm                                                                                                                        6/2/11 12:35 PM


              Accumulated deficit                                                                       (29,828)       (419,468)
              Accumulated other comprehensive income                                                         —            9,875

                 Total Groupon, Inc. Stockholders' (Deficit) Equity                                     (29,969)          8,077
              Noncontrolling interests                                                                       —           (1,530)

                 Total (Deficit) Equity                                                                 (29,969)         6,547

                 Total Liabilities and (Deficit) Equity                                             $   14,962     $   381,570


                                                  See Notes to Consolidated Financial Statements.

                                                                       F-4




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                   Page 155 of 269
groupon.htm                                                                                                                    6/2/11 12:35 PM


 Table of Contents


                                                        GROUPON, INC.

                                     CONSOLIDATED STATEMENTS OF OPERATIONS

                                       (in thousands, except share and per share amounts)

                                                                                   Year Ended December 31,
                                                                        2008                2009               2010
              Revenue                                             $              94 $          30,471 $         713,365
              Cost of revenue                                                    89            19,542           433,411
              Gross profit                                                        5            10,929           279,954

              Operating expenses:
               Marketing                                                         163            4,548           263,202
               Selling, general and administrative                             1,474            7,458           233,913
               Acquisition-related                                                —                —            203,183
                   Total operating expenses                                 1,637              12,006            700,298
              Loss from operations                                         (1,632)             (1,077)          (420,344)
              Interest and other income (expense), net                         90                 (16)               284
              Loss before provision for income taxes                       (1,542)             (1,093)          (420,060)
              Provision (benefit) for income taxes                             —                  248             (6,674)
              Net loss                                                     (1,542)             (1,341)          (413,386)
              Less: Net loss attributable to noncontrolling
                 interests                                                     —                   —              23,746
              Net loss attributable to Groupon, Inc.                       (1,542)             (1,341)          (389,640)
              Dividends on preferred stock                                   (277)             (5,575)            (1,362)
              Redemption of preferred stock in excess of carrying
                 value                                                           —                  —            (52,893)
              Adjustment of redeemable noncontrolling interests
                 to redemption value                                           —                   —             (12,425)
              Preferred stock distributions                                  (339)                 —                  —
              Net loss attributable to common stockholders        $        (2,158) $           (6,916) $        (456,320)

              Net loss per share
               Basic                                              $            (0.01) $          (0.04) $             (2.66)
               Diluted                                            $            (0.01) $          (0.04) $             (2.66)

              Weighted average number of shares outstanding
               Basic                                                  166,738,129         168,604,142        171,349,386
               Diluted                                                166,738,129         168,604,142        171,349,386

                                          See Notes to Consolidated Financial Statements.

                                                               F-5




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                               Page 156 of 269
groupon.htm                                                                                                                                                             6/2/11 12:35 PM


 Table of Contents


                                                                      GROUPON, INC.

                          CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY

                                                            (in thousands, except share amounts)

                                                                          Groupon, Inc. Stockholders' (Deficit) Equity
                                    Series B, C, D, E, F,                                                                            Total
                                      and G Preferred                                                                            Groupon Inc.
                                            Stock              Common Stock          Additional                      Accumulated Stockholders'    Non-      Total
                                                                            Treasury Paid-In Stockholder Accumulated Other Comp.    (Deficit)  controlling (Deficit)
                                  Shares    Amount            Shares  Amount Stock    Capital   Receivable  Deficit    Income        Equity     Interests   Equity
              Balance at
                December 31,
                2007              1,000,000 $ 1,000 160,895,998 $            2$       — $         72 $         —$          (1,032)$     —$         42 $      —$        42
               Net loss and
                 comprehensive
                 loss                    —       —           —              —         —           —            —           (1,542)      —       (1,542)      —      (1,542)
               Conversion of
                 preferred stock (1,000,000) (1,000) 6,000,000               1        —          999           —              —         —          —         —         —
               Exercise of stock
                 options                 —       —       60,000             —         —            1           —              —         —            1       —           1
               Vesting of
                 restricted stock
                 units                   —       —    1,000,000             —         —           —            —              —         —          —         —         —
               Stock-based
                 compensation
                 expense                 —       —           —              —         —           24           —              —         —          24        —         24
               Preferred stock
                 distributions           —       —           —              —         —         (339)          —              —         —        (339)       —       (339)
               Preferred stock
                 dividends               —       —           —              —         —         (277)          —              —         —        (277)       —       (277)
              Balance at
                December 31,
                2008                        —         — 167,955,998          3        —          480           —           (2,574)      —       (2,091)      —      (2,091)
               Net loss and
                 comprehensive
                 loss                       —         —             —       —         —           —            —           (1,341)      —       (1,341)      —      (1,341)
              Issuance of stock             —         —       1,800,000     —         —          144         (144)            —         —          —         —         —
              Exercise of stock
                 options,
                 including tax
                 benefits                   —         —       2,010,498     —         —          216           —              —         —         216        —        216
              Vesting of
                 restricted stock
                 units                      —         —       1,180,000     —         —           —            —              —         —          —         —         —
              Stock-based
                 compensation
                 expense                    —         —             —       —         —          115           —              —         —         115        —        115
              Common stock
                 dividends,
                 $0.125 per
                 share                      —         —             —       —         —         (955)          —          (20,338)      —      (21,293)      —     (21,293)
              Preferred stock
                 dividends                  —         —             —       —         —           —            —           (5,575)      —       (5,575)      —      (5,575)
              Balance at
                December 31,
                2009                        —         — 172,946,496          3        —           —          (144)        (29,828)      —      (29,969)      —     (29,969)
              Net loss                      —         —             —       —         —           —            —         (389,640)      —     (389,640)   (1,530) (391,170)
              Foreign currency
                translation                 —         —             —       —         —           —            —              —       9,875     9,875        —      9,875
              Comprehensive
                loss                        —         —             —       —         —           —            —              —         —     (379,765)      — (381,295)
              Adjustment of
                redeemable
                noncontrolling
                interests to
                redemption
                value                       —         —             —       —         —      (12,425)          —              —         —      (12,425)      —     (12,425)
              Stock issued in
                connection
                with business
                combinations                —         —      43,117,156      1        —      348,016           —              —         —     348,017        —    348,017
              Proceeds from



file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                                                          Page 157 of 269
groupon.htm                                                                                                                                                  6/2/11 12:35 PM


                issuance of
                stock (net of
                issuance costs) 18,447,676       2         —       —        —       584,656        —           —         —       584,658        —       584,658
              Exercise of stock
                options,
                including tax
                benefits                —       —    1,214,332     —        —          369       (142)         —         —           227        —          227
              Vesting of
                restricted stock
                units                   —       —       82,500     —        —           —          —           —         —            —         —           —
              Stock-based
                compensation
                expense                 —       —          —       —        —        22,160        —           —         —        22,160        —        22,160
              Redemption of
                preferred stock   (580,384)     —          —       —        —       (55,003)       —           —         —        (55,003)      —       (55,003)
              Repurchase of
                common stock            —       — (46,664,328)     — (503,173)          —          —           —         —       (503,173)      — (503,173)
              Reclassification
                of redeemable
                preferred stock 11,166,332       1         —       —        —        34,711        —           —         —        34,712        —        34,712
              Preferred stock
                dividends               —       —          —       —        —        (1,362)       —           —         —         (1,362)      —        (1,362)
              Balance at
                December 31,
                2010            29,033,624 $     3 170,696,156 $    4 $(503,173)$   921,122 $    (286)$   (419,468)$   9,875 $     8,077 $   (1,530)$     6,547


                                               See Notes to Consolidated Financial Statements.

                                                                    F-6




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                                               Page 158 of 269
groupon.htm                                                                                                             6/2/11 12:35 PM


 Table of Contents


                                                          GROUPON, INC.

                                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                             (in thousands)

                                                                                         Year Ended December 31,
                                                                                      2008       2009         2010
              Operating activities
              Net loss                                                              $ (1,542) $ (1,341) $ (413,386)
              Adjustments to reconcile net loss to net cash provided by (used in)
                 operating activities:
                Depreciation and amortization                                            17          80       12,952
                Stock-based compensation                                                 24         115       36,168
                Deferred income taxes                                                    —           —        (7,349)
                Excess tax benefit on stock-based compensation                           —         (143)         (32)
                Non-cash interest expense                                                —           —           106
                Acquisition-related expense                                              —           —       203,183
                Change in assets and liabilities, net of acquisitions:
                  Accounts receivable                                                    —         (601)     (34,905)
                  Prepaid expenses and other current assets                              (4)        (67)      (2,467)
                  Accounts payable                                                       —          182       50,835
                  Accrued merchant payable                                               (3)      4,305      149,044
                  Accrued expenses and other current liabilities                        (18)      5,038       94,592
                  Due to related parties                                                 —          (20)        (319)
                  Other                                                                  —          (38)      (1,537)
              Net cash (used in) provided by operating activities                    (1,526)      7,510       86,885
              Investing activities
              Purchases of property and equipment                                       (19)       (290)     (14,681)
              Acquisitions of businesses, net of acquired cash                           —           —         3,816
              Purchases of intangible assets                                             —         (271)        (922)
              Changes in restricted cash                                                 —       (1,400)         (92)
              Net cash used in investing activities                                     (19)     (1,961)     (11,879)
              Financing activities
              Issuance of stock, net of issuance costs                                4,746      29,946      584,658
              Excess tax benefit on stock-based compensation                             —          143           32
              Loans from related parties                                                 —           —         5,035
              Preferred stock distributions                                            (339)         —            —
              Repurchase of common stock                                                 —           —      (503,173)
              Proceeds from exercise of stock options                                     1          72          195
              Dividends paid on common and preferred stock                               —      (26,363)      (1,299)
              Redemption of preferred stock                                              —           —       (55,003)
              Net cash provided by financing activities                               4,408       3,798       30,445
              Effect of exchange rate changes on cash and cash equivalents               —           —         1,069

              Net increase in cash and cash equivalents                               2,863       9,347      106,520

              Cash and cash equivalents, beginning of year                              103    2,966    12,313
              Cash and cash equivalents, end of year                                $ 2,966 $ 12,313 $ 118,833
              Supplemental disclosure of cash flow information
               Income tax payments                                                       —           — $         140
               Cash interest payments                                                    —           — $         287

              Non-cash investing activity
               Capital expenditures incurred not yet paid                                — $         34 $      2,379
               Contingent consideration given in connection with acquisitions            —           — $      63,180
               Issuance of common stock in connection with acquisitions                  —           — $      80,200
              Non-cash financing activity
               Receivable for stock options exercised not yet paid                       —           — $         142
               Receivable for stock issuance proceeds not yet paid                       — $        144           —


file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                        Page 159 of 269
groupon.htm                                                                                                 6/2/11 12:35 PM


               Dividends accrued                                                  $   277 $   505 $   278

                                         See Notes to Consolidated Financial Statements.

                                                              F-7




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                            Page 160 of 269
groupon.htm                                                                                                                                 6/2/11 12:35 PM


 Table of Contents


                                                          GROUPON, INC.

                                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 1. DESCRIPTION OF BUSINESS

     Groupon, Inc., together with the subsidiaries through which it conducts business (the "Company"), is a local e-commerce
 marketplace (www.groupon.com) that connects merchants to consumers by offering goods and services at a discount. The Company,
 which commenced operations in November 2008, creates a new way for local merchants to attract customers, while providing
 consumers with savings and helping them discover what to do, eat, see and buy in the places they live and work. Each day, the
 Company emails its subscribers with discounted offers for goods and services that are targeted by location and personal preferences.
 Consumers also access deals directly through the Company's website and mobile application.

      The Company, based in Chicago, Illinois, was founded by Andrew D. Mason, the Company's CEO, and Eric P. Lefkofsky, the
 Company's Executive Chairman, and evolved from a business they founded called The Point (www.thepoint.com), which is a web
 platform that enables users to promote collective action in support of social, educational and other causes. The Point originally was
 established as a limited liability company ("ThePoint"). Effective January 15, 2008, The Point converted its legal form to a
 corporation organized and existing under the General Corporation Law of the State of Delaware, and merged with and into
 ThePoint.com, a newly-established corporation ("ThePoint.com"). ThePoint.com subsequently changed its legal name to
 Groupon, Inc.

      The Company has organized its operations into two principal segments: North America and International. See Note 13 "Segment
 Information."

 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

        Basis of Presentation

      The consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany accounts and
 transactions have been eliminated in consolidation. The Company's consolidated financial statements were prepared in accordance
 with United States generally accepted accounting principles ("U.S. GAAP") and include the assets, liabilities, revenues and expenses
 of all wholly-owned subsidiaries and majority-owned subsidiaries over which the Company exercises control. Outside stockholders'
 interests in subsidiaries are shown in the consolidated financial statements as "Noncontrolling interests." The consolidated statements
 of operations include the results of entities acquired from the date of the acquisition for accounting purposes.

        Stock Splits

     In May 2010, the Company's Board of Directors (the "Board") approved a resolution to effect a three-for-one stock split of the
 Company's common stock with no corresponding change to the par value. The stock split became effective in August 2010. The
 Board also approved a two-for-one stock split of the Company's common stock in December 2010 with no corresponding change in
 par value, which became effective in January 2011. All common share numbers and per share amounts for all periods presented have
 been adjusted retroactively to reflect both the three-for-one and the two-for-one stock splits.

        Use of Estimates

       The preparation of financial statements in conformity with U.S. GAAP requires estimates and assumptions that affect the
 reported amounts and classifications of assets and liabilities, revenues and expenses, and the related disclosures of contingent
 liabilities in the consolidated financial statements and accompanying notes. Estimates are utilized for, but not limited to, stock-based
 compensation, income

                                                                   F-8




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                            Page 161 of 269
groupon.htm                                                                                                                                 6/2/11 12:35 PM


 Table of Contents


                                                           GROUPON, INC.

                            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 taxes, valuation of acquired goodwill and intangible assets, customer refunds, contingent liabilities and the depreciable lives of fixed
 assets. Actual results could differ materially from those estimates.

        Cash and Cash Equivalents

      The Company considers all highly-liquid investments with an original maturity of three months or less from the date of purchase
 to be cash equivalents.

        Restricted Cash

      The Company had $1.2 and $0.2 million of restricted cash recorded in prepaid expenses and other current assets and other non-
 currents assets, respectively, at December 31, 2009. The Company had $0.3 million and $0.2 million of restricted cash recorded in
 prepaid expenses and other current assets and other non-currents assets, respectively, at December 31, 2010. The carrying value of
 restricted cash approximates fair value.

        Accounts Receivable, net

      Accounts receivable primarily represent the net cash due from the Company's credit card and other payment processors for
 cleared transactions. The carrying amount of the Company's receivables is reduced by an allowance for doubtful accounts that reflects
 management's best estimate of amounts that will not be collected. The allowance is based on historical loss experience and any
 specific risks identified in collection matters. Accounts receivable are charged off against the allowance for doubtful accounts when it
 is determined that the receivable is uncollectible. The Company's allowance for doubtful accounts at December 31, 2009 and 2010
 was $0 and less than $0.1 million, respectively. The corresponding bad debt expense for the years ended December 31, 2008, 2009
 and 2010 was $0, $0 and less than $0.1 million, respectively.

        Property and Equipment, net

      Property and equipment includes assets such as furniture and fixtures, leasehold improvements, computer hardware, and office
 and telephone equipment. The Company accounts for property and equipment at cost less accumulated depreciation and amortization.
 Depreciation expense is recorded on a straight-line basis over the estimated useful lives of the assets (generally three years for
 computer hardware and office and telephone equipment, five years for furniture and fixtures, and the shorter of the life of the lease or
 five years for leasehold improvements) and is classified within selling, general and administrative expenses in the consolidated
 statements of operations. See Note 5 "Property and Equipment, net."

        Lease Obligations

      The Company categorizes leases at their inception as either operating or capital leases, and may receive renewal or expansion
 options, rent holidays, and leasehold improvement and other incentives on certain lease agreements. The Company recognizes lease
 costs on a straight-line basis taking into account adjustments for market provisions, such as free or escalating base monthly rental
 payments, or deferred payment terms such as rent holidays that defer the commencement date of required payments. Additionally, the
 Company treats any incentives received as a reduction of costs over the term of the agreement. The Company records rent expense
 associated with lease obligations in selling, general and administrative expenses in the consolidated statements of operations. See
 Note 7 "Commitments and Contingencies."

                                                                   F-9




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                            Page 162 of 269
groupon.htm                                                                                                                                     6/2/11 12:35 PM


 Table of Contents


                                                            GROUPON, INC.

                             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

        Goodwill and Other Intangible Assets

      The Company evaluates goodwill for impairment annually or more frequently when an event occurs or circumstances change that
 indicates the carrying value may not be recoverable. The Company evaluates the recoverability of goodwill using a two-step
 impairment test. In the first step, the fair value for the reporting unit is compared to its book value including goodwill. In the case that
 the fair value is less than the book value, a second step is performed that compares the implied fair value of goodwill to the book
 value of the goodwill. The fair value for the implied goodwill is determined based on the difference between the fair value of the
 reporting unit, which is generally based on the discounted future cash flows, and the net fair values of the identifiable assets and
 liabilities excluding goodwill. If the implied fair value of the goodwill is less than the book value, the difference is recognized as an
 impairment charge in the consolidated statements of operations. Absent any special circumstances that could require an interim test,
 the Company has elected to test for goodwill impairment during the fourth quarter of each year.

      Accounting guidance for the impairment or disposal of long-lived assets, other than goodwill, also requires that intangible assets
 with finite lives be amortized over their respective estimated useful lives and reviewed for impairment whenever events or changes in
 circumstances indicate that the carrying amount of the assets might not be recoverable. Conditions that would necessitate an
 impairment assessment include a significant decline in the observable market value of an asset, a significant change in the extent or
 manner in which an asset is used, or any other significant adverse change that would indicate that the carrying amount of an asset or
 group of assets may not be recoverable. Amortization is computed using the straight-line method over the estimated useful lives of the
 respective intangible assets, generally from one to five years. See Note 4 "Goodwill and Other Intangible Assets."

        Loyalty and Rewards Programs

      The Company uses various customer loyalty and reward programs to build brand loyalty and provide customers with incentives
 to buy Groupons. When customers perform qualifying acts, such as providing a referral to a new subscriber or participating in
 promotional offers, the Company grants the customer credits that can be redeemed for Groupons in the future. The Company accrues
 the costs related to the associated obligation to redeem the award credits granted at issuance in accrued expenses on the consolidated
 balance sheets (see Note 6 "Accrued Expenses") and records the corresponding offset to revenue on the consolidated statements of
 operations.

        Income Taxes

       The provision for income taxes is determined using the asset and liability method. Under this method, deferred tax assets and
 liabilities are calculated based upon the temporary differences between the financial statement and income tax bases of assets and
 liabilities using the enacted tax rates that are applicable in a given year. The deferred tax assets are recorded net of a valuation
 allowance when, based on the weight of available evidence, the Company believes it is more likely than not that some portion or all of
 the recorded deferred tax assets will not be realized in future periods. The Company considers many factors when assessing the
 likelihood of future realization of its deferred tax assets, including recent cumulative earnings experience, expectations of future
 taxable income and capital gains by taxing jurisdiction, the carry-forward periods available for tax reporting purposes, and other
 relevant factors. The Company allocates its valuation allowance to current and long-term deferred tax assets on a pro-rata basis. A
 change in the estimate of future taxable income may require an increase or decrease to the valuation allowance.

                                                                    F-10




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                                Page 163 of 269
groupon.htm                                                                                                                                  6/2/11 12:35 PM


 Table of Contents


                                                           GROUPON, INC.

                             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

      The Company utilizes a two-step approach to recognizing and measuring uncertain tax positions ("tax contingencies"). The first
 step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than
 not that the position will be sustained on audit, including resolution of related appeals or litigation processes. The second step is to
 measure the tax benefit as the largest amount which is more than 50% likely of being realized upon ultimate settlement. The Company
 considers many factors when evaluating and estimating its tax positions and tax benefits, which may require periodic adjustments and
 which may not accurately forecast actual outcomes. The Company includes interest and penalties related to tax contingencies in the
 provision for income taxes on the statements of operations. See Note 12 "Income Taxes."

        Fair Value of Financial Instruments

     The carrying amounts of the Company's financial instruments, including cash and cash equivalents, accounts receivable, accounts
 payable, accrued merchant payable, accrued expenses and loans from related parties, approximate fair value due to their generally
 short-term maturities. The Company records money market funds and contingent consideration at fair value. See Note 11 "Fair Value
 Measurements."

        Revenue Recognition

      The Company recognizes revenue from Groupons when the following criteria are met: persuasive evidence of an arrangement
 exists; delivery has occurred; the selling price is fixed or determinable; and collectability is reasonably assured. These criteria
 generally are met when the number of customers who purchase the daily deal exceeds the predetermined threshold, based on the
 executed contract between the Company and its merchants. The Company records the gross amount it receives from Groupons,
 excluding taxes where applicable, as the Company is the primary obligor in the transaction, and records an allowance for estimated
 customer refunds on total revenue primarily based on historical experience. As noted above, the Company also records costs related to
 the associated obligation to redeem the award credits granted at issuance as an offset to revenue.

        Cost of Revenue

     Cost of revenue consists of direct costs incurred to generate the Company's revenue, primarily the agreed-upon payments to the
 merchants. Cost of revenue components are recorded with the associated revenue and payments are made to merchants based on either
 negotiated payment schedules or the redemption of Groupons by customers.

        Marketing

     Marketing expense consists primarily of online marketing costs, such as sponsored search, advertising on social networking sites,
 email marketing campaigns, affiliate programs, and to a lesser extent, offline marketing costs such as television, radio and print
 advertising. The Company records these costs in marketing expense on the consolidated statements of operations when incurred.

        Stock-Based Compensation

      The Company measures stock-based compensation cost at fair value, net of estimated forfeitures, and generally recognizes the
 corresponding compensation expense on a straight-line basis over the service period during which awards are expected to vest. The
 Company includes stock-based compensation expense in the selling, general and administrative expenses in the consolidated
 statements of operations. The fair value of restricted stock units and restricted stock is estimated based on valuations of the Company's
 (or subsidiaries') stock on the grant date or reporting date if required to be remeasured under

                                                                  F-11




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                             Page 164 of 269
groupon.htm                                                                                                                                 6/2/11 12:35 PM


 Table of Contents


                                                           GROUPON, INC.

                            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 accounting guidance. The fair value of stock options is determined on the date of grant using the Black-Scholes-Merton valuation
 model. See Note 9 "Stock-Based Compensation."

        Foreign Currency

      Balance sheet accounts of the Company's operations outside of the U.S. are translated from foreign currencies into U.S. dollars at
 the exchange rates as of the consolidated balance sheet dates. Revenues and expenses are translated at average exchange rates during
 the period. Foreign currency translation gains or losses are included in accumulated other comprehensive income on the consolidated
 balance sheet. Gains and losses resulting from foreign currency transactions, which are denominated in currencies other than the
 entity's functional currency, are included in other income (expense) in the consolidated statements of operations. For the year ended
 December 31, 2010, the Company had $0.5 million of foreign currency transaction gains.

        Recent Accounting Pronouncements

      In September 2006, the Financial Accounting Standards Board ("FASB") issued accounting guidance, which, among other
 requirements, defines fair value, establishes a framework for measuring fair value, and expands disclosures about the use of fair value
 measurements. Such guidance prescribes a single definition of fair value as the price that would be received to sell an asset or paid to
 transfer a liability in an orderly transaction between market participants at the measurement date. For financial instruments and
 certain nonfinancial assets and liabilities that are recognized or disclosed at fair value on a recurring basis at least annually, the
 guidance was effective beginning the first fiscal year that begins after November 15, 2007. This portion of the guidance, which was
 adopted as of the beginning of fiscal 2008, had no impact on the consolidated financial statements. For all other nonfinancial assets
 and liabilities, the guidance was effective for fiscal years beginning after November 15, 2008. The Company adopted this guidance
 effective as of the beginning of fiscal 2009, and its application had no impact on the consolidated financial statements. In January
 2010, the FASB issued additional guidance that improves disclosures about fair value measures that were originally required. The
 new guidance was effective for interim and annual periods beginning after December 15, 2009, except for the disclosures about
 purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are
 effective for fiscal years beginning after December 15, 2010, and for interim periods within those years. The adoption of this
 guidance did not impact the Company's financial position or results of operations.

       In December 2007, the FASB issued guidance that establishes principles and requirements for determining how a company
 recognizes and measures the fair value of identifiable assets acquired, liabilities assumed, noncontrolling interests and certain
 contingent considerations acquired in a business combination. The guidance on business combinations also requires acquisition-
 related transaction expenses and restructuring costs be expensed as incurred rather than capitalized. This guidance became effective
 for fiscal years beginning after December 15, 2008 and the Company adopted the provisions of this guidance prospectively beginning
 in 2009. In December 2010, the FASB issued an update to this guidance, which specifies that if a public entity presents comparative
 financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s)
 that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period. The
 amendments also expand the supplemental pro forma disclosures that are required. The new guidance is effective prospectively for
 business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or
 after December 15, 2010. The Company plans to adopt the provisions of this business combinations guidance at the beginning of
 2011.

                                                                  F-12




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                            Page 165 of 269
groupon.htm                                                                                                                                    6/2/11 12:35 PM


 Table of Contents


                                                            GROUPON, INC.

                             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

      In April 2008, the FASB issued a staff position that amends the list of factors an entity should consider in developing renewal or
 extension assumptions used in determining the useful life of recognized intangible assets. This new guidance applies to intangible
 assets that are acquired individually or with a group of other assets in business combinations and asset acquisitions. Under this
 guidance, entities estimating the useful life of a recognized intangible asset must consider their historical experience in renewing or
 extending similar arrangements or, in the absence of historical experience, must consider assumptions that market participants would
 use about renewal or extension. This staff position became effective for fiscal years beginning after December 15, 2008. The
 Company adopted the provisions of this guidance prospectively beginning in 2009, and its application had no impact on the
 consolidated financial statements.

      In June 2009, the FASB issued guidance that establishes the FASB Accounting Standards Codification as the sole source of
 authoritative U.S. GAAP. Pursuant to these provisions, the Company has incorporated the applicable guidance in its consolidated
 financial statements. The adoption of this guidance did not impact the consolidated financial statements.

      In June 2009, the FASB issued guidance that eliminates the qualifying special purpose entity concept, changes the requirements
 for derecognizing financial assets and requires enhanced disclosures about transfers of financial assets. The guidance also revises
 earlier guidance for determining whether an entity is a variable interest entity, requires a new approach for determining who should
 consolidate a variable interest entity, changes when it is necessary to reassess who should consolidate a variable interest entity, and
 requires enhanced disclosures related to an enterprise's involvement in variable interest entities. The guidance is effective for the first
 annual reporting period that begins after November 15, 2009. The Company adopted the provisions of this guidance prospectively
 beginning in 2010, and its application had no impact on the consolidated financial statements.

      In September 2009, the FASB issued guidance that allows companies to allocate arrangement consideration in a multiple element
 arrangement in a way that better reflects the transaction economics. It provides another alternative for establishing fair value for a
 deliverable when vendor specific objective evidence or third party evidence for deliverables in an arrangement cannot be determined.
 When this evidence cannot be determined, companies will be required to develop a best estimate of the selling price to separate
 deliverables and allocate arrangement consideration using the relative selling price method. The guidance also expands the disclosure
 requirements to require that an entity provide both qualitative and quantitative information about the significant judgments made in
 applying this guidance. This guidance was effective on a prospective basis for revenue arrangements entered into or materially
 modified on or after January 1, 2011. The adoption of this guidance did not have a material impact on the consolidated financial
 statements.

     In February 2010, the FASB issued guidance, effective immediately, which removes the requirement to disclose the date through
 which subsequent events were evaluated in both originally issued and reissued financial statements for Securities and Exchange
 Commission ("SEC") filers. The adoption of this guidance did not have a material impact on the consolidated financial statements.

     In December 2010, the FASB issued guidance about when to perform Step 2 of the goodwill impairment test for reporting units
 with zero or negative carrying amounts. According to the new guidance, entities must consider whether it is more likely than not that
 goodwill impairment exists by assessing if there are any adverse qualitative factors indicating impairment. The qualitative factors are
 consistent with the existing guidance. The new guidance is effective for fiscal years, and interim periods within those years,

                                                                   F-13




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                               Page 166 of 269
groupon.htm                                                                                                                              6/2/11 12:35 PM


 Table of Contents


                                                         GROUPON, INC.

                            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)




 beginning after December 15, 2010. The adoption of this guidance did not have a material impact on the consolidated financial
 statements.

 3. ACQUISITIONS

        CityDeal Europe GmbH Acquisition

      In May 2010, the Company entered into a Share Exchange and Transfer Agreement (the "CityDeal Agreement") to acquire
 CityDeal Europe GmbH ("CityDeal"), a collective buying power business launched in January 2010 that provides daily deals and
 online marketing services substantially similar to the Company. Headquartered in Berlin, Germany, CityDeal (which, prior to the
 acquisition, was doing business as CityDeal but now operates under the Groupon MyCityDeal and Groupon CityDeal names) operated
 in more than 80 European cities and 16 countries including France, Germany, Italy, the Netherlands, Poland, Spain, Turkey and the
 United Kingdom. As a result of the acquisition, the Company believes it has established a significant presence in the European market
 by strategically expanding into new geographies and increasing its subscriber base, gained CityDeal management's local expertise in
 maintaining existing vendor relationships and establishing new relationships, and obtained an assembled workforce that has
 significant experience and knowledge of the industry.

      Under the terms of the CityDeal Agreement, by and among the Company, CityDeal, CD-Rocket Holding UG ("Rocket Holding"),
 CityDeal Management UG ("CityDeal Management") and Groupon Germany Gbr ("Groupon Germany"), Rocket Holding and
 CityDeal Management transferred all of the outstanding shares of CityDeal to Groupon Germany, in exchange for $0.6 million in cash
 and 41,400,000 shares of the Company's voting common stock (valued at $125.4 million as of the acquisition date), and CityDeal
 merged with and into Groupon Germany with CityDeal as the surviving entity and a wholly-owned subsidiary of the Company. The
 Company delivered 19,800,000 of such shares of voting common stock in May 2010, with the remaining 21,600,000 shares delivered
 as of December 31, 2010, due to the achievement of financial and performance earn-out targets discussed below.

      In connection with the acquisition, Rocket Holding and CityDeal Management entered into a Shareholders Agreement with the
 Company. Pursuant to the Shareholders Agreement, the shares of the Company's common stock owned by Rocket Holding, CityDeal
 Management and their affiliates must be voted in the same manner as the majority-in-interest of the shares of voting common stock
 held by the Company's founders related to certain material transactions, including an initial public offering of the Company's voting
 common stock, the authorization, designation or issuance of any new class or series of the Company's capital stock or a material
 acquisition or asset transfer. In addition, the Company and the former CityDeal shareholders entered into a loan agreement to provide
 CityDeal with a $25.0 million term loan facility. See Note 14 "Related Parties."

      The acquisition was accounted for using the purchase method of accounting and the operations of CityDeal were included in the
 consolidated financial statements from the date of the acquisition. The purchase price was allocated to the tangible assets and
 intangible assets acquired and liabilities assumed based on their estimated fair values on the acquisition date, with the remaining
 unallocated purchase price recorded as goodwill. The fair value assigned to identifiable intangible assets acquired was determined
 using an income approach for subscriber relationships and trade names, and a cost approach for vendor relationships and developed
 technology. Purchased identifiable intangible assets are amortized on a straight-line basis over their respective useful lives, which
 range from one to five years.

     The Company had an obligation, as part of the CityDeal Agreement, to transfer additional common stock of the Company to the
 former shareholders of CityDeal as part of the share exchange, if specified

                                                                 F-14




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                         Page 167 of 269
groupon.htm                                                                                                                                6/2/11 12:35 PM


 Table of Contents


                                                                GROUPON, INC.

                            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 3. ACQUISITIONS (Continued)



 financial and performance earn-outs targets were achieved. The Company determined that the acquisition-date fair value of this
 consideration was $62.9 million based on the likelihood of contingent earn-out payments. The Company subsequently remeasured the
 fair value of the contingent consideration on a recurring basis due to the earnout target not meeting the criteria for equity treatment
 and recorded a total charge of $204.2 million in acquisition-related expenses for the year ended December 31, 2010, which is
 reported separately in the consolidated statement of operations with other acquisition-related expenses. The charge resulted primarily
 due to the significant increase in the value of the Company's common stock from the original valuation date until the date the
 contingency was settled.

     The following table summarizes the purchase price allocations (in thousands). Goodwill of $95.0 million represents the premium
 the Company paid over the fair value of the net tangible and intangible assets it acquired. None of the goodwill is deductible for tax
 purposes.

                           Description                                                                          Fair Value
                           Net working capital (including cash of $6.4 million)                               $        7,331
                           Property and equipment, net                                                                   746
                           Goodwill                                                                                   94,992
                           Intangible assets (1):
                             Vendor relationships                                                                      5,786
                             Developed technology                                                                        985
                             Trade names                                                                               5,048
                             Subscriber relationships                                                                 28,438
                           Deferred tax liability                                                                     (9,344)
                           Due to related party                                                                       (7,962)
                                                                                                              $ 126,020


                           (1)     Acquired intangible assets have estimated useful lives of between 1 and 5 years.


     The following unaudited pro forma information presents a summary of the operating results of the Company for the year ended
 December 31, 2010, as if the Company had acquired CityDeal as of January 1, 2010 (in thousands).

                                                                                                            Groupon, Inc.
                                                                                                             Pro Forma
                                                                                                             Combined
                                                                                                                2010
                           Revenue                                                                      $          721,784
                           Loss from operations                                                                   (440,954)
                           Net loss                                                                               (434,239)
                           Less: Net loss attributable to noncontrolling interests                                  27,986
                           Net loss attributable to Groupon, Inc.                                       $         (406,253)

      Revenue and net loss for CityDeal for the period from May 16, 2010 to December 31, 2010 was $222.1 million and
 $126.6 million, respectively.

        Qpod.inc Acquisition

      In August 2010, the Company acquired Qpod.inc ("Qpod"), a Japanese corporation established in June 2010, which operates a
 collective buying power business that provides daily deals and online marketing services substantially similar to the Company.
 Headquartered in Tokyo, Japan, Qpod launched

                                                                         F-15




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                           Page 168 of 269
groupon.htm                                                                                                                                     6/2/11 12:35 PM


 Table of Contents


                                                            GROUPON, INC.

                             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 3. ACQUISITIONS (Continued)

 its daily deals services in July 2010. As a result of the acquisition, the Company believes it has established a significant presence in
 the Japanese market by increasing its subscriber base, gained Qpod management's local expertise in establishing new vendor
 relationships, and obtained an assembled workforce that has knowledge of the industry.

      Under the terms of the purchase agreement, the Company acquired approximately 55.1% of the total issued and outstanding
 capital stock of Qpod in exchange for $10.2 million in cash. In conjunction with the acquisition, the Company entered into an
 agreement with certain founding members and other shareholders of Qpod, which provided the Company with call rights that allow it
 to buy a percentage of the remaining shares of Qpod. Exercising all of the call rights would entitle the Company to an aggregate of up
 to 90% of the outstanding capital stock of Qpod. Additionally, the remaining Qpod shareholders have put rights to sell their
 outstanding capital stock to the Company in the event of an initial public offering of the Company, subject to certain conditions,
 which if exercised in full, would give the Company up to an aggregate of 90% of the outstanding capital stock of Qpod. Management
 determined that Qpod is not a variable interest entity and therefore consolidated Qpod under the traditional voting interest model since
 the Company has a controlling financial interest in Qpod and the non-controlling interest holders do not have the right to vote on any
 ordinary course of business decisions.

      The acquisition was accounted for using the purchase method of accounting and the operations of Qpod were included in the
 consolidated financial statements from the date of the acquisition. The purchase price and fair value of the noncontrolling interest
 were allocated to the tangible assets and intangible assets acquired and liabilities assumed based on their estimated fair values on the
 acquisition date, with the remaining unallocated amount recorded as goodwill. The fair value assigned to identifiable intangible assets
 acquired and the noncontrolling interest was determined using an income approach for subscriber relationships and trade names, a
 cost approach for vendor relationships and developed technology and assuming a discount for lack of control to value the
 noncontrolling interest. Purchased identifiable intangible assets are amortized on a straight-line basis over their respective useful lives,
 which range from one to five years.

                                                                    F-16




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                                Page 169 of 269
groupon.htm                                                                                                                                6/2/11 12:35 PM


 Table of Contents


                                                                GROUPON, INC.

                            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 3. ACQUISITIONS (Continued)

      The following table summarizes the allocation of the purchase price of $10.2 million and the fair value of noncontrolling interest
 of $8.5 million as of the acquisition date (in thousands). Goodwill of $7.0 million represents the premium the Company paid over the
 fair value of the net tangible and intangible assets it acquired. None of the goodwill is deductible for tax purposes.

                           Description                                                                         Fair Value
                           Net working capital (including cash of $11.0 million)                              $       10,384
                           Property and equipment, net                                                                    31
                           Goodwill                                                                                    7,031
                           Intangible assets (1):
                             Vendor relationships                                                                        200
                             Developed technology                                                                         60
                             Trade names                                                                                  20
                             Subscriber relationships                                                                  1,000
                                                                                                              $       18,726


                           (1)     Acquired intangible assets have estimated useful lives of between 1 and 5 years.


     The following unaudited pro forma information presents the operating results of the Company for the year ended December 31,
 2010, as if the Company had acquired Qpod as of January 1, 2010 (in thousands).

                                                                                                            Groupon, Inc.
                                                                                                             Pro Forma
                                                                                                             Combined
                                                                                                                2010
                           Revenue                                                                        $        713,630
                           Loss from operations                                                                   (421,977)
                           Net loss                                                                               (415,052)
                           Less: Net loss attributable to noncontrolling interests                                  23,746
                           Net loss attributable to Groupon, Inc.                                         $       (391,306)

       The noncontrolling interest is redeemable at the option of the holder as of December 31, 2010. The Company recorded
 $11.6 million in "Additional paid-in capital" to adjust the noncontrolling interest to its redemption value as of December 31, 2010.
 For the year ended December 31, 2010, there was $20.3 million of the net loss and $0.2 million of other comprehensive income
 related to foreign currency translation attributed to Qpod.

      The revenue and net loss for Qpod for the period from August 12 to December 31, 2010 was $27.8 million and $45.0 million,
 respectively.

        Other Acquisitions

      In 2010, the Company acquired certain other entities (excluding CityDeal and Qpod) for an aggregate purchase price of
 $34.8 million, consisting of $16.8 million in cash and the issuance of shares of the Company's voting common stock (valued at
 $18.0 million). The primary reasons for these acquisitions were to establish the Company's presence in selected Asia Pacific and
 Latin American markets, by strategically expanding into new geographies and increasing the Company's subscriber base, to obtain an
 assembled

                                                                         F-17




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                           Page 170 of 269
groupon.htm                                                                                                                                    6/2/11 12:35 PM


 Table of Contents


                                                                 GROUPON, INC.

                             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 3. ACQUISITIONS (Continued)

 workforce that has experience and knowledge of the industry, and to gain local expertise in establishing new vendor relationships. In
 addition, the Company acquired two U.S.-based businesses that specialize in local marketing services and developing mobile
 technology to help expand and advance the Company's product offerings.

      The acquisitions were accounted for using the purchase method of accounting and the operations of these acquired companies
 were included in the consolidated financial statements from the date of the acquisition. The purchase price and fair value of the
 noncontrolling interests were allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated
 fair values on their corresponding acquisition date, with the remaining unallocated amount recorded as goodwill. The fair value
 assigned to identifiable intangible assets acquired and noncontrolling interest was determined using an income approach for
 subscriber relationships and trade names, a cost approach for vendor relationships and developed technology and assuming a discount
 for lack of control to value the noncontrolling interest. Purchased identifiable intangible assets are amortized on a straight-line basis
 over their respective useful lives, which range from one to five years.

      The following table summarizes the allocation of the combined purchase price of $34.8 million and the fair value of
 noncontrolling interest of $4.2 million as of the acquisition date (in thousands). Goodwill of $21.5 million represents the premium the
 Company paid over the fair value of the net tangible and intangible assets it acquired. None of the goodwill is deductible for tax
 purposes.

                            Description                                                                         Fair Value
                            Net working capital (including cash of $14.1 million)                              $       11,544
                            Property and equipment, net                                                                   266
                            Goodwill                                                                                   21,464
                            Intangible assets (1):
                              Vendor relationships                                                                        290
                              Developed technology                                                                        920
                              Trade names                                                                                 110
                              Subscriber relationships                                                                  4,390
                                                                                                               $       38,984


                            (1)     Acquired intangible assets have estimated useful lives of between 1 and 5 years.


      The financial effect of these acquisitions, individually and in the aggregate, was not material to the consolidated financial
 statements. Pro forma results of operations have not been presented because the effects of these business combinations, individually
 and in the aggregate, were not material to the consolidated results of operations as most of the acquisitions were start-up businesses.

       Certain of the noncontrolling interests are redeemable at the option of the holders as of December 31, 2010. The Company
 attributed $2.0 million of the net loss to the noncontrolling interests and recorded $0.9 million in "Additional paid-in capital" to adjust
 the noncontrolling interests to their redemption value as of December 31, 2010.

                                                                          F-18




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                               Page 171 of 269
groupon.htm                                                                                                                           6/2/11 12:35 PM


 Table of Contents


                                                               GROUPON, INC.

                           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 4. GOODWILL AND OTHER INTANGIBLE ASSETS

     The following summarizes the Company's goodwill activity in 2010 (in thousands):

                                                                   North America        International       Consolidated
                          Balance as of December 31,
                            2009                                 $               — $                 — $              —
                          Goodwill related to the
                            CityDeal acquisition                                 —              94,992           94,992
                          Goodwill related to the
                            Qpod.inc acquisition                                 —                7,031            7,031
                          Goodwill related to other
                            acquisitions                                    19,605                1,859          21,464
                          Other adjustments (1)                                 —                 8,551           8,551
                          Balance as of December 31,
                            2010                                 $          19,605 $           112,433 $        132,038


                          (1)     Includes changes in foreign exchange rates for goodwill.


     The following summarizes the Company's other intangible assets (in thousands):

                                                                     As of December 31, 2009                 Weighted-
                                                                                                               Average
                                                         Gross                                               Remaining
                                                        Carrying        Accumulated          Net Carrying    Useful Life
                          Asset Category                 Value          Amortization            Value         (in years)
                          Subscriber
                            relationships              $        — $                — $                  — $           —
                          Merchant
                            relationships                       —                  —                    —             —
                          Trade names                           —                  —                    —             —
                          Developed
                            technology                          —                  —                    —             —
                          Other intangible
                            assets                            270                  31                239             4.4
                                                       $      270 $                31 $              239             4.4



                                                                   As of December 31, 2010                   Weighted-
                                                                                                               Average
                                                         Gross                                               Remaining
                                                        Carrying        Accumulated          Net Carrying    Useful Life
                          Asset Category                 Value          Amortization            Value         (in years)
                          Subscriber
                            relationships             $ 36,389 $                3,760 $           32,629             4.5
                          Merchant
                            relationships                   6,789               3,801              2,988             0.5
                          Trade names                       5,619               3,230              2,389             0.4
                          Developed
                            technology                      2,054                395               1,659             1.6
                          Other intangible
                            assets                          1,263                153               1,110             3.8
                                                      $ 52,114 $              11,339 $            40,775             3.8

     Amortization expense for these intangible assets was less than $0.1 million and $11.0 million for the years ended December 31,
 2009 and 2010, respectively. There was no amortization expense recorded in

                                                                         F-19



file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                      Page 172 of 269
groupon.htm                                        6/2/11 12:35 PM




file:///Users/arikhesseldahl/Desktop/groupon.htm   Page 173 of 269
groupon.htm                                                                                                                         6/2/11 12:35 PM


 Table of Contents


                                                       GROUPON, INC.

                           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 4. GOODWILL AND OTHER INTANGIBLE ASSETS (Continued)



 2008 since all intangible assets were acquired in 2009 and 2010. The following summarizes the Company's estimated future
 amortization expense of these intangible assets as of December 31, 2010 (in thousands):

                          Year Ended December 31,
                           2011                                                            $ 14,106
                           2012                                                               8,110
                           2013                                                               7,481
                           2014                                                               7,449
                           2015                                                               3,629
                                                                                           $ 40,775

 5. PROPERTY AND EQUIPMENT, NET

     The following summarizes the Company's property and equipment, net as of December 31 (in thousands):

                                                                                   2009       2010
                          Furniture and fixtures                               $      258 $ 6,691
                          Leasehold improvements                                       —     5,233
                          Computer hardware and other                                  —     3,396
                          External software                                            33    1,767
                          Office and telephone equipment                               57    1,408
                          Property and equipment                                      348   18,495
                          Less: accumulated depreciation and amortization             (74)  (2,005)
                          Property and equipment, net                          $      274 $ 16,490

     Depreciation expense on property and equipment was less than $0.1 million for the years ended December 31, 2008 and 2009 and
 $1.9 million for the year ended December 31, 2010.

 6. ACCRUED EXPENSES

     The following summarizes the Company's accrued expenses as of December 31(in thousands):

                                                                                   2009       2010
                          Marketing                                            $      572 $ 48,244
                          Refunds reserve                                           2,932   13,938
                          Payroll and benefits                                        337   12,187
                          Customer rewards                                            199    8,333
                          Rent                                                         26    3,169
                          Credit card fees                                            301    2,500
                          Professional fees                                            —     2,341
                          Other                                                       469    7,611
                                                                               $    4,836 $ 98,323

                                                              F-20




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                    Page 174 of 269
groupon.htm                                                                                                                                   6/2/11 12:35 PM


 Table of Contents


                                                            GROUPON, INC.

                             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 7. COMMITMENTS AND CONTINGENCIES

        Operating Leases

       The Company has entered into various non-cancelable operating lease agreements, primarily covering certain of its offices
 throughout the world, with original lease periods expiring between 2011 and 2017. Rent expense under these operating leases was
 less than $0.1 million, $0.2 million and $3.7 million for the years ended December 31, 2008, 2009 and 2010, respectively.

       Certain of these arrangements have renewal or expansion options and adjustments for market provisions, such as free or
 escalating base monthly rental payments. The Company recognizes rent expense under such arrangements on the straight-line basis
 over the initial term of the lease. The difference between the straight-line expense and the cash paid for rent has been recorded as
 deferred rent.

      The Company is responsible for paying its proportionate share of the actual operating expenses and real estate taxes under certain
 of these lease agreements. These operating expenses are not included in the table below. At December 31, 2010, future payments
 under operating leases (including rent escalation clauses) were as follows (in thousands):

                            Year Ended December 31,
                             2011                                                                 $ 10,780
                             2012                                                                    6,054
                             2013                                                                    3,964
                             2014                                                                    3,200
                             2015                                                                    3,067
                            Thereafter                                                               3,625
                                                                                                  $ 30,690

        Purchase Obligations

     The Company entered into a non-cancelable service contract, primarily covering marketing services, which expires in 2012. At
 December 31, 2010, future payments under this contractual obligation were as follows (in thousands):

                            Year Ended December 31,
                             2011                                                                  $    906
                             2012                                                                       227
                             2013                                                                        —
                             2014                                                                        —
                             2015                                                                        —
                            Thereafter                                                                   —
                                                                                                   $ 1,133

        Letter of Credit

     The Company is contingently liable under an irrevocable letter of credit. The letter of credit is in lieu of a security deposit and is
 required under a sublease agreement, which began in April 2010. The letter of credit, which is included in other non-current assets
 and prepaid expenses and other current assets on the

                                                                   F-21




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                              Page 175 of 269
groupon.htm                                                                                                                                      6/2/11 12:35 PM


 Table of Contents


                                                             GROUPON, INC.

                             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 7. COMMITMENTS AND CONTINGENCIES (Continued)

 consolidated balance sheet at December 31, 2009 and December 31, 2010, respectively, is for $0.2 million and expired on June 1,
 2011.

         Legal Matters

      The Company currently is involved in several disputes or regulatory inquiries, including suits by its customers (individually or as
 class actions) alleging, among other things, violation of the Credit Card Accountability, Responsibility and Disclosure Act and state
 laws governing gift cards, stored value cards and coupons, violations of unclaimed and abandoned property laws and violations of
 privacy laws. The number of these disputes and inquiries is increasing. Any claims or regulatory actions against the Company,
 whether meritorious or not, could be time consuming, result in costly litigation, damage awards, injunctive relief or increased costs of
 doing business through adverse judgment or settlement, require the Company to change its business practices in expensive ways,
 require significant amounts of management time, result in the diversion of significant operational resources or otherwise harm the
 Company's business.

       In addition, third parties have from time to time claimed, and others may claim in the future, that the Company has infringed their
 intellectual property rights. The Company is subject to intellectual property disputes, and expects that it will increasingly be subject to
 intellectual property infringement claims as its services expand in scope and complexity. The Company has in the past been forced to
 litigate such claims. The Company may also become more vulnerable to third-party claims as laws such as the Digital Millennium
 Copyright Act are interpreted by the courts, and as the Company becomes subject to laws in jurisdictions where the underlying laws
 with respect to the potential liability of online intermediaries are either unclear or less favorable. The Company believes that
 additional lawsuits alleging that it has violated patent, copyright or trademark laws will be filed against it. Intellectual property claims,
 whether meritorious or not, are time consuming and costly to resolve, could require expensive changes in the Company's methods of
 doing business, or could require it to enter into costly royalty or licensing agreements.

       From time to time, the Company may become party to additional litigation incident to the ordinary course of business. The
 Company assesses the likelihood of any adverse judgments or outcomes with respect to these matters and determines loss contingency
 assessments on a gross basis after assessing the probability of incurrence of a loss and whether a loss is reasonably estimable. In
 addition, the Company considers other relevant factors that could impact its ability to reasonably estimate a loss. A determination of
 the amount of reserves required, if any, for these contingencies is made after analyzing each matter. The Company's reserves may
 change in the future due to new developments or changes in strategy in handling these matters. Although the results of litigation and
 claims cannot be predicted with certainty, the Company currently believes that the final outcome of these matters will not have a
 material adverse effect on its business, consolidated financial position, results of operations, or cash flows. Regardless of the outcome,
 litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources
 and other factors.

         Indemnifications

      In the normal course of business to facilitate transactions related to its operations, the Company indemnifies certain parties,
 including lessors and from time to time merchants with respect to certain matters. The Company has agreed to hold certain parties
 harmless against losses arising from a breach of representations or covenants, or other claims made against certain parties. These
 agreements may limit the

                                                                    F-22




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                                 Page 176 of 269
groupon.htm                                                                                                                               6/2/11 12:35 PM


 Table of Contents


                                                          GROUPON, INC.

                            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 7. COMMITMENTS AND CONTINGENCIES (Continued)

 time within which an indemnification claim can be made and the amount of the claim. In addition, the Company has entered into
 indemnification agreements with its officers and directors, and the bylaws contain similar indemnification obligations to agents.

      It is not possible to determine the maximum potential amount under these indemnification agreements due to the limited history
 of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. Historically, the
 payments that the Company has made under these agreements have not had a material impact on the operating results, financial
 position, or cash flows of the Company.

 8. STOCKHOLDERS' EQUITY (DEFICIT)

      ThePoint.com, a Delaware LLC, sold an aggregate amount of 159,895,998 common units in 2006 and 2007 to certain equity
 holders including members of management and the Board for $1.0 million, and used the proceeds from the sale for working capital
 and general corporate purposes. On January 15, 2008, these equity holders contributed to the Company all of the outstanding
 membership interests in ThePoint.com in exchange for equity interests in the Company, and ThePoint.com merged with and into the
 Company with the Company surviving as the surviving corporation.

 Common Stock

      The Board has authorized two classes of common stock, voting and non-voting. At December 31, 2010, there were 500,000,000
 and 100,000,000 shares authorized and there were 165,616,260 and 5,079,896 shares outstanding of voting and non-voting common
 stock, respectively. The rights of the holders of voting and non-voting common stock are identical, except with respect to voting.
 Each share of voting common stock is entitled to one vote per share while the non-voting common stock has no voting rights, except
 as required by law. Shares of non-voting common stock automatically convert into shares of voting common stock immediately upon
 the closing of a firmly underwritten public offering covering the offer and sale of common stock for the Company's account (an
 "initial public offering"). Voting and non-voting common stock are collectively referred to as common stock throughout the notes to
 these financial statements unless otherwise noted.

      In May 2010, the Board approved a resolution to effect a three-for-one stock split of the Company's common stock with no
 corresponding change to the par value. The stock split became effective in August 2010. The Board also approved a two-for-one
 stock split of the Company's common stock in December 2010 with no corresponding change in par value, which became effective in
 January 2011. All common share numbers and per share amounts for all periods presented have been adjusted retroactively to reflect
 both the three-for-one and the two-for-one stock split.

      The Company issues stock-based awards to its employees in the form of stock options, restricted stock units and restricted stock,
 all of which have the potential to increase the outstanding shares of common stock in the future. See Note 9 "Stock-Based
 Compensation."

      Upon any liquidation, dissolution or winding up of the Company (a "liquidation event"), the remaining assets of the Company
 will be distributed ratably among all preferred and common stockholders only after the payment of the full Series G Convertible
 Preferred Stock ("Series G Preferred") liquidation preference of $450.0 million has been satisfied.

                                                                 F-23




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                          Page 177 of 269
groupon.htm                                                                                                                                     6/2/11 12:35 PM


 Table of Contents


                                                            GROUPON, INC.

                             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 8. STOCKHOLDERS' EQUITY (DEFICIT) (Continued)

 Convertible Preferred Stock

      The Company authorized 199,998 shares of Series B Convertible Preferred Stock ("Series B Preferred"), 6,560,174 shares of
 Series D Convertible Preferred Stock ("Series D Preferred"), 4,406,160 shares of Series E Convertible Preferred Stock ("Series E
 Preferred"), 4,202,658 shares of Series F Convertible Preferred Stock ("Series F Preferred") and up to 30,075,690 shares of Series G
 Preferred. The Series B Preferred, Series D Preferred, Series E Preferred, Series F Preferred and Series G Preferred, collectively, are
 referenced below as the "Series Preferred." The rights, preferences, privileges, restrictions and other matters relating to the Series
 Preferred are as follows:

 Series B Preferred

      In 2007, the Company authorized the sale and issuance of 199,998 shares of Series B Preferred for less than $0.1 million, and
 used the proceeds from the sale for working capital and general corporate purposes. There were 199,998 shares outstanding at
 December 31, 2009 and 2010, respectively. The holders of Series B Preferred were entitled to annual dividends payable at a rate of
 6% of the Series B Preferred original issue price. The dividends were cumulative and accrued from the date of issue while the shares
 were redeemable at the option of the holders. These dividend rights were subsequently rescinded by the Board in December 2010. As
 of December 31, 2009 and 2010, there was less than $0.1 million of accrued preferred dividends due to Series B Preferred holders.
 The Company recorded the accrued dividends as a reduction to "Additional paid-in capital" or "Accumulated deficit." The holders of
 Series B Preferred also are entitled to receive, on an as-converted to voting common stock basis, any other dividend or distribution
 when, as and if declared by the Board, participating equally with the holders of common stock and the holders of Series Preferred.

      Holders of Series B Preferred are entitled to the number of votes equal to the product obtained by multiplying (i) the number of
 shares of voting common stock into which their shares of Series B Preferred could be converted and (ii) 150. In addition, the Series B
 Preferred holders are entitled to receive, upon a liquidation event, the amount that would have been received if all shares of Series
 Preferred had been converted into voting common stock immediately prior to such liquidation event, only after the payment of the full
 Series G Preferred liquidation preference has been satisfied. If, upon the liquidating event, the assets of the Company are insufficient
 to fully pay the amounts owed to Series B Preferred holders, all distributions would be made ratably in proportion to the full amounts
 to which preferred and common stockholders would have otherwise been entitled. In the event that the Company is a party to an
 acquisition or asset transfer, each holder of Series B Preferred is entitled to receive the amount of cash, securities, or other property to
 which such holder would be entitled to receive in a liquidation event.

       Each share of Series B Preferred shall automatically be converted into shares of voting common stock upon the earliest of the
 following events to occur: (i) holders of at least 50% of the outstanding shares of Series B Preferred consent to a conversion, or
 (ii) upon any sale, assignment, transfer, conveyence, hypothecation or other disposition of any legal or beneficial interest in such
 shares, whether or not for value and whether voluntary or involuntary or by operation of law, subject to certain exceptions. The
 number of shares of voting common stock to which a Series B Preferred stockholder is entitled upon conversion is calculated by
 multiplying the applicable conversion rate then in effect (currently 6.0) by the number of Series B Preferred shares to be converted.
 The conversion rate for the Series B Preferred shares is subject to change in accordance with anti-dilution provisions contained in the
 agreement with those holders. More specifically, the conversion price is subject to adjustment to prevent dilution on a weighted-
 average basis in the event that the Company issues additional shares of common stock or securities

                                                                    F-24




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                                Page 178 of 269
groupon.htm                                                                                                                                  6/2/11 12:35 PM


 Table of Contents


                                                           GROUPON, INC.

                             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 8. STOCKHOLDERS' EQUITY (DEFICIT) (Continued)



 convertible or exercisable for common stock at a purchase price less than the then effective conversion price. As of December 31,
 2009 and 2010, 1,199,988 shares of voting common stock would have been required to be issued assuming conversion of all of the
 issued and outstanding shares of Series B Preferred.

      The Company evaluated various components of the Series B Preferred, including redemption features, dividend and voting rights,
 protective covenants and conversion rights. The Company concluded that the Series B Preferred was redeemable at the option of the
 holder at December 31, 2009 and classified the Series B Preferred in mezzanine equity. The Series B Preferred was not adjusted to its
 redemption value because it was not probable the holders would redeem at December 31, 2009. The Company subsequently
 reevaluated its conclusion due to the elimination of the holders' redemption rights in December 2010, and determined that the Series B
 Preferred should be classified as an equity instrument as of December 31, 2010.

 Series D Preferred

       In January 2008, the Company authorized the sale and issuance of 6,560,174 shares of Series D Preferred for $4.8 million in
 gross proceeds (or $4.7 million, net of issuance costs), and used the proceeds from the sale for working capital and general corporate
 purposes. There were 6,560,174 shares and 6,258,297 shares outstanding at December 31, 2009 and 2010, respectively. The holders
 of Series D Preferred were entitled to annual dividends payable at a rate of 6% of the Series D Preferred original issue price. The
 dividends were cumulative and accrued from the date of issue while the shares were redeemable at the option of the holder. These
 dividend rights were subsequently rescinded by the Board in December 2010. As of December 31, 2009 and 2010, the accrued
 preferred dividends due to Series D Preferred holders were $0.6 million and $0.8 million, respectively. The Company recorded the
 accrued dividends as a reduction to "Additional paid-in capital" or "Accumulated deficit." The holders of Series D Preferred also are
 entitled to receive, on an as-converted to voting common stock basis, any other dividend or distribution when, as and if declared by
 the Board, participating equally with the holders of common stock and the holders of Series Preferred.

       Holders of Series D Preferred are entitled to the number of votes equal to the number of shares of voting common stock into
 which their shares of Series D Preferred could be converted. In addition, the Series D Preferred holders are entitled to receive, upon a
 liquidation event, the amount that would have been received if all shares of Series Preferred had been converted into voting common
 stock immediately prior to such liquidation event, only after the payment of the full Series G Preferred liquidation preference has been
 satisfied. If, upon the liquidating event, the assets of the Company are insufficient to fully pay the amounts owed to Series D Preferred
 holders, all distributions would be made ratably in proportion to the full amounts to which preferred and common stockholders would
 have otherwise been entitled. In the event that the Company is a party to an acquisition or asset transfer, each holder of Series D
 Preferred is entitled to receive the amount of cash, securities, or other property to which such holder would be entitled to receive in a
 liquidation event.

       Each share of Series D Preferred shall automatically be converted into shares of voting common stock upon the earliest of the
 following events to occur: (i) holders of at least 50% of the outstanding shares of Series D Preferred consent to a conversion, or
 (ii) immediately upon the closing of an initial public offering. The number of shares of voting common stock to which a Series D
 Preferred stockholder is entitled upon conversion is calculated by multiplying the applicable conversion rate then in effect (currently
 6.0) by the number of Series D Preferred shares to be converted. The conversion rate for the

                                                                  F-25




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                             Page 179 of 269
groupon.htm                                                                                                                                  6/2/11 12:35 PM


 Table of Contents


                                                           GROUPON, INC.

                             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 8. STOCKHOLDERS' EQUITY (DEFICIT) (Continued)



 Series D Preferred shares is subject to change in accordance with anti-dilution provisions contained in the agreement with those
 holders. More specifically, the conversion price is subject to adjustment to prevent dilution on a weighted-average basis in the event
 that the Company issues additional shares of common stock or securities convertible or exercisable for common stock at a purchase
 price less than the then effective conversion price. As of December 31, 2009 and 2010, the number of shares of voting common stock
 that would have been required to be issued assuming conversion of all of the issued and outstanding shares of Series D Preferred was
 39,361,044 and 37,549,782 respectively.

      The Company evaluated various components of the Series D Preferred, including redemption features, dividend and voting rights,
 protective covenants and conversion rights. The Company concluded that the Series D Preferred was redeemable at the option of the
 holder at December 31, 2009 and classified the Series D Preferred in mezzanine equity. The Series D Preferred was not adjusted to its
 redemption value because it was not probable the holders would redeem at December 31, 2009. The Company subsequently
 reevaluated its conclusion due to the elimination of the holders' redemption rights in December 2010, and determined that the
 Series D Preferred should be classified as an equity instrument as of December 31, 2010.

 Series E Preferred

      In November 2009, the Company authorized the sale and issuance of 4,406,160 shares of Series E Preferred for $30.0 million in
 gross proceeds (or $29.9 million, net of issuance costs), and used $26.4 million of the proceeds from the sale to fund a dividend paid
 to holders of the Company's capital stock on a pro-rata basis and the remainder for working capital and general corporate purposes.
 The Company recorded the dividend payments as a reduction to "Accumulated deficit," and to a lesser extent, "Additional paid-in
 capital." There were 4,406,160 shares and 4,127,653 shares outstanding at December 31, 2009 and 2010, respectively. The holders of
 Series E Preferred were entitled to annual dividends payable at a rate of 6% of the Series E Preferred original issue price. The
 dividends were cumulative and accrued from the date of issue. These dividend rights were subsequently rescinded by the Board in
 December 2010. As of December 31, 2009 and 2010, the accrued preferred dividends due to Series E Preferred holders were
 $0.2 million and $0, respectively. The holders of Series E Preferred also are entitled to receive, on an as-converted to voting common
 stock basis, any other dividend or distribution when, as and if declared by the Board, participating equally with the holders of
 common stock and the holders of Series Preferred.

       Holders of Series E Preferred are entitled to the number of votes equal to the number of shares of voting common stock into
 which their shares of Series E Preferred could be converted. In addition, the Series E Preferred holders are entitled to receive, upon a
 liquidation event, the amount that would have been received if all shares of Series Preferred had been converted into voting common
 stock immediately prior to such liquidation event, only after the payment of the full Series G Preferred liquidation preference has been
 satisfied. If, upon the liquidating event, the assets of the Company are insufficient to fully pay the amounts owed to Series E Preferred
 holders, all distributions would be made ratably in proportion to the full amounts to which preferred and common stockholders would
 have otherwise been entitled. In the event that the Company is a party to an acquisition or asset transfer, each holder of Series E
 Preferred is entitled to receive the amount of cash, securities, or other property to which such holder would be entitled to receive in a
 liquidation event.

                                                                  F-26




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                             Page 180 of 269
groupon.htm                                                                                                                                  6/2/11 12:35 PM


 Table of Contents


                                                           GROUPON, INC.

                             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 8. STOCKHOLDERS' EQUITY (DEFICIT) (Continued)

       Each share of Series E Preferred shall automatically be converted into shares of voting common stock upon the earliest of the
 following events to occur: (i) holders of at least 50% of the outstanding shares of Series E Preferred consent to a conversion, or
 (ii) immediately upon the closing of an initial public offering. The number of shares of voting common stock to which a Series E
 Preferred stockholder is entitled upon conversion is calculated by multiplying the applicable conversion rate then in effect (currently
 6.0) by the number of Series E Preferred shares to be converted. The conversion rate for the Series E Preferred shares is subject to
 change in accordance with anti-dilution provisions contained in the agreement with those holders. More specifically, the conversion
 price is subject to adjustment to prevent dilution on a weighted-average basis in the event that the Company issues additional shares
 of common stock or securities convertible or exercisable for common stock at a purchase price less than the then effective conversion
 price. As of December 31, 2009 and 2010, the number of shares of voting common stock that would have been required to be issued
 assuming conversion of all of the issued and outstanding shares of Series E Preferred was 26,436,960 and 24,765,918, respectively.

      The Company evaluated various components of the Series E Preferred, including redemption features, dividend and voting rights,
 protective covenants and conversion rights. The Company concluded that the Series E Preferred was redeemable at the option of the
 holders at December 31, 2009 and classified the Series E Preferred in mezzanine equity. The Series E Preferred was not adjusted to
 its redemption value because it was not probable the holder would redeem at December 31, 2009. The Company subsequently
 reevaluated its conclusion due to the elimination of the holders' redemption rights in December 2010, and determined that the Series E
 Preferred should be classified as an equity instrument as of December 31, 2010.

 Series F Preferred

      In April 2010, the Company authorized the sale and issuance of 4,202,658 shares of Series F Preferred for $135.0 million in gross
 proceeds (or $134.9 million, net of issuance costs), and used $119.9 million of the proceeds from the sale to redeem shares of its
 outstanding common stock held by certain shareholders and the remainder for working capital and general corporate purposes. All
 shares of Series F Preferred were outstanding at December 31, 2010. The holders of Series F Preferred were not entitled to annual
 preferred dividends, but are entitled to receive, on an as-converted to voting common stock basis, any other dividend or distribution
 when, as and if declared by the Board, participating equally with the holders of common stock and the holders of Series Preferred.

       Holders of Series F Preferred are entitled to the number of votes equal to the number of shares of voting common stock into
 which their shares of Series F Preferred could be converted. In addition, the Series F Preferred holders are entitled to receive, upon a
 liquidation event, the amount that would have been received if all shares of Series Preferred had been converted into voting common
 stock immediately prior to such liquidation event, only after the payment of the full Series G Preferred liquidation preference has been
 satisfied. If, upon the liquidating event, the assets of the Company are insufficient to fully pay the amounts owed to Series F Preferred
 holders, all distributions would be made ratably in proportion to the full amounts to which preferred and common stockholders would
 have otherwise been entitled. In the event that the Company is a party to an acquisition or asset transfer, each holder of Series F
 Preferred is entitled to receive the amount of cash, securities, or other property to which such holder would be entitled to receive in a
 liquidation event.

                                                                  F-27




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                             Page 181 of 269
groupon.htm                                                                                                                                 6/2/11 12:35 PM


 Table of Contents


                                                           GROUPON, INC.

                            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 8. STOCKHOLDERS' EQUITY (DEFICIT) (Continued)

       Each share of Series F Preferred shall automatically be converted into shares of voting common stock upon the earliest of the
 following events to occur: (i) holders of at least 50% of the outstanding shares of Series F Preferred consent to a conversion, or
 (ii) immediately upon the closing of an initial public offering. The number of shares of voting common stock to which a Series F
 Preferred stockholder is entitled upon conversion is calculated by multiplying the applicable conversion rate then in effect (currently
 6.0) by the number of Series F Preferred shares to be converted. The conversion rate for the Series F Preferred shares is subject to
 change in accordance with anti-dilution provisions contained in the agreement with those holders. More specifically, the conversion
 price is subject to adjustment to prevent dilution on a weighted-average basis in the event that the Company issues additional shares
 of common stock or securities convertible or exercisable for common stock at a purchase price less than the then effective conversion
 price. As of December 31, 2009 and 2010, 25,215,948 shares of voting common stock would have been required to be issued
 assuming conversion of all of the issued and outstanding shares of Series F Preferred.

 Series G Preferred

      In December 2010, the Company authorized the sale of 30,075,690 shares of Series G Preferred and the initial issuance of
 14,245,018 shares of Series G Preferred for $450.0 million in gross proceeds (or $449.7 million, net of issuance costs), and used
 $438.3 million of the proceeds from the sale to redeem shares of its outstanding common stock and preferred stock held by certain
 shareholders and the remainder for working capital and general corporate purposes. All issued shares of Series G Preferred were
 outstanding at December 31, 2010. The holders of Series G Preferred are not entitled to annual preferred dividends, but are entitled to
 receive, on an as-converted to voting common stock basis, any other dividend or distribution when, as and if declared by the Board,
 participating equally with the holders of common stock and the holders of Series Preferred.

       Holders of Series G Preferred are entitled to the number of votes equal to the number of shares of voting common stock into
 which their shares of Series G Preferred could be converted. In addition, the Series G Preferred holders are entitled, before any
 distribution or payment is made upon any Series B Preferred, Series D Preferred, Series E Preferred, Series F Preferred or common
 stock, to be paid an amount per share equal to 100% of the Series G Preferred original price, plus all declared but unpaid dividends on
 the Series G Preferred. If, upon the liquidating event, the assets of the Company are insufficient to fully pay the amounts owed to
 Series G Preferred holders, all distributions would be made ratably in proportion to the full amounts to which Series G Preferred
 holders would have otherwise been entitled. In the event that the Company is a party to an acquisition or asset transfer, each holder of
 Series G Preferred is entitled to receive the amount of cash, securities, or other property to which such holder would be entitled to
 receive in a liquidation event.

       Each share of Series G Preferred shall automatically be converted into shares of voting common stock upon the earliest of the
 following events to occur: (i) holders of at least 50% of the outstanding shares of Series G Preferred consent to a conversion, or
 (ii) immediately upon the closing of an initial public offering. The number of shares of voting common stock to which a Series G
 Preferred stockholder is entitled upon conversion is calculated by multiplying the applicable conversion rate then in effect (currently
 2.0) by the number of Series G Preferred shares to be converted. The conversion rate for the Series G Preferred shares is subject to
 change in accordance with anti-dilution provisions contained in the agreement with those holders. More specifically, the conversion
 price is subject to adjustment to prevent dilution on a weighted-average basis in the event that the Company issues additional shares
 of common

                                                                  F-28




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                            Page 182 of 269
groupon.htm                                                                                                                                 6/2/11 12:35 PM


 Table of Contents


                                                           GROUPON, INC.

                            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 8. STOCKHOLDERS' EQUITY (DEFICIT) (Continued)



 stock or securities convertible or exercisable for common stock at a purchase price less than the then effective conversion price. As of
 December 31, 2010, 28,490,036 shares of voting common stock would have been required to be issued assuming conversion of all of
 the issued and outstanding shares of Series G Preferred.

 Stock Repurchase Activity

      In April 2010 and December 2010, the Board authorized the Company to repurchase shares of its capital stock held by certain
 holders, using a portion of the proceeds from the sale of Series F Preferred and the sale of Series G Preferred, respectively. The
 Company repurchased 46,664,328 shares of common stock for $503.2 million, which was recorded as "Treasury stock," and 580,384
 shares of preferred stock for $55.0 million, which was recorded as a reduction to "Additional paid-in capital," on the consolidated
 balance sheet at December 31, 2010.

 9. STOCK-BASED COMPENSATION

        Groupon, Inc. Stock Plans

      In January 2008, the Company adopted the ThePoint.com 2008 Stock Option Plan, as amended (the "2008 Plan"), under which
 options for up to 32,309,250 shares of common stock were authorized to be issued to employees, consultants, and directors of
 ThePoint.com, which is now the Company. In April 2010, the Company established the Groupon, Inc. 2010 Stock Plan, as amended
 (the "2010 Plan"), under which stock options and restricted stock units ("RSUs") for up to 7,000,000 shares of non-voting common
 stock were authorized for future issuance to employees, consultants and directors of the Company. The 2008 Plan and the 2010 Plan
 (the "Plans") are administered by the Board, who determine the number of awards to be issued, the corresponding vesting schedule
 and the exercise price for options. As of December 31, 2010, 1,997,700 shares were available for future issuance under the Plans. In
 addition to the Plans, the Company has issued stock options, restricted stock and RSUs that are governed by employment agreements,
 some of which are still unvested and outstanding.

        Stock Options

      The exercise price of stock options granted is equal to the fair market value of the underlying stock on the date of grant. The
 contractual term for stock options expires ten years from the grant date. Stock options generally vest over a three or four-year period,
 with 25% of the awards vesting after one year and the remainder of the awards vesting on a monthly basis thereafter. The fair value of
 stock options on the date of grant is amortized on a straight-line basis over the requisite service period.

                                                                  F-29




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                            Page 183 of 269
groupon.htm                                                                                                                                                               6/2/11 12:35 PM


 Table of Contents


                                                                    GROUPON, INC.

                              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 9. STOCK-BASED COMPENSATION (Continued)

     The table below summarizes the stock option activity during the years ended December 31, 2008, 2009 and 2010:

                                                                                                                Weighted-
                                                                                                                 Average
                                                                                               Weighted-        Remaining              Aggregate
                                                                                                Average         Contractual            Intrinsic
                                                                                               Exercise          Term (in              Value (in
                                                                               Options           Price            years)             thousands) (a)
              Outstanding at December 31, 2007                                1,656,000       $       0.02              9.40     $               —
               Granted                                                        1,110,000       $       0.03              9.72
               Exercised                                                        (60,000)      $       0.02              8.50
               Forfeited                                                             —                  —                 —
              Outstanding at December 31, 2008                                2,706,000       $       0.02              8.94     $               66
               Granted                                                        7,245,000       $       0.17              9.54
               Exercised                                                     (2,010,498)      $       0.04              8.16
               Forfeited                                                       (942,000)      $       0.10              9.31
              Outstanding at December 31, 2009                                6,998,502       $       0.16              9.35     $           6,274
               Granted                                                        8,765,200       $       3.05              9.32
               Exercised                                                     (1,214,332)      $       0.16              7.79
               Forfeited                                                       (816,518)      $       0.27              8.58
              Outstanding at December 31, 2010                               13,732,852       $       2.00              9.00     $        189,406
              Exercisable at December 31, 2010                                 1,733,574 $            0.29              8.43 $              26,872


              (a)     The aggregate intrinsic value of options outstanding and exercisable represents the total pretax intrinsic value (the difference between the fair
                      value of the Company's stock on the last day of each fiscal year and the exercise price, multiplied by the number of options where the
                      exercise price exceeds the fair value) that would have been received by the option holders had all option holders exercised their options as of
                      December 31, 2008, 2009 and 2010, respectively.


      The fair value of stock options granted is estimated on the date of grant using the Black-Scholes-Merton option-pricing model.
 Expected volatility is based on historical volatilities for publicly-traded options of comparable companies over the estimated expected
 life of the stock options. The expected term represents the period of time the stock options are expected to be outstanding and is based
 on the "simplified method." The Company used the "simplified method" due to the lack of sufficient historical exercise data to
 provide a reasonable basis upon which to otherwise estimate the expected life of the stock options. The risk-free interest rate is based
 on yields on U.S. Treasury STRIPS with a maturity similar to the estimated expected life of the stock options. The weighted-average
 assumptions for stock options granted during the years ended December 31, 2008, 2009 and 2010 are outlined in the following table.

                                                                                                  2008        2009        2010
                             Dividend yield                                                         —            —           —
                             Risk-free interest rate                                              3.10%        2.82%       2.58%
                             Expected term (in years)                                             5.98         6.84        6.13
                             Expected volatility                                                    46%          46%         46%

     Based on the above assumptions, the weighted-average grant date fair value of stock options granted during the years ended
 December 31, 2008, 2009 and 2010 was $0.01, $0.09 and $1.45, respectively. The

                                                                             F-30




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                                                          Page 184 of 269
groupon.htm                                                                                                                                     6/2/11 12:35 PM


 Table of Contents


                                                            GROUPON, INC.

                             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 9. STOCK-BASED COMPENSATION (Continued)



 total fair value of options that vested during the years ended December 31, 2008, 2009 and 2010 was less than $0.1 million, less than
 $0.1 million and $0.3 million, respectively.

        Restricted Stock Units

      The restricted stock units granted under the Plans vest over a four-year period, with 25% of the awards vesting after one year and
 the remaining awards vesting on a monthly basis thereafter. The fair value of restricted stock units on the date of grant is amortized on
 a straight-line basis over the requisite service period. The fair value of restricted stock units that vested during each of the years ended
 December 31, 2008, 2009 and 2010 was less than $0.1 million.

      The table below summarizes activity regarding unvested restricted stock units under the Plans during the years ended
 December 31, 2008, 2009 and 2010:

                                                                                                 Weighted-
                                                                                               Average Grant
                                                                                 Restricted    Date Fair Value
                                                                                Stock Units      (per share)
                            Unvested at December 31, 2007                        2,345,000    $          0.02
                             Granted                                                    —     $            —
                             Vested                                             (1,000,000)   $          0.03
                             Forfeited                                                  —     $            —
                            Unvested at December 31, 2008                        1,345,000    $          0.02
                             Granted                                                    —     $            —
                             Vested                                             (1,180,000)   $          0.02
                             Forfeited                                             (82,500)   $          0.02
                            Unvested at December 31, 2009                           82,500    $          0.02
                             Granted                                             1,788,300    $         14.32
                             Vested                                                (82,500)   $          0.02
                             Forfeited                                                  —     $            —
                            Unvested at December 31, 2010                        1,788,300    $         14.32

        Performance Stock Units

      In May 2010, the Company issued performance stock units ("PSUs") under the terms of the agreement to acquire Mobly, Inc., a
 mobile technology company. The Company agreed to issue up to 720,000 PSUs to the previous Mobly shareholders contingent on
 meeting certain performance-based operational objectives over the next three years. Upon being granted, the PSUs immediately vest
 as common stock. During 2010, a total 120,000 shares were granted, and 600,000 shares are still eligible to be granted in the future
 based on the performance criteria and discretion of the Board. The Company started recording stock compensation expense at the
 service inception date, which began at the date of acquisition and precedes the grant date. Due to the subjective nature of the
 performance evaluation, the fair value of the PSUs is remeasured each period until the grant date, when stock compensation expense is
 adjusted to the grant date fair value. The total fair value of PSUs that vested during the year ended December 31, 2010 was
 $1.1 million.

                                                                    F-31




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                                Page 185 of 269
groupon.htm                                                                                                                                    6/2/11 12:35 PM


 Table of Contents


                                                            GROUPON, INC.

                             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 9. STOCK-BASED COMPENSATION (Continued)

      The Company recognized stock compensation expense of less than $0.1 million, $0.1 million and $7.1 million during the years
 ended December 31, 2008, 2009 and 2010, respectively, related to awards issued under the Plans and employment agreements. The
 corresponding tax benefit provided by stock compensation was $0, $0.1 million and less than $0.1 million for the years ended
 December 31, 2008, 2009 and 2010, respectively.

      As of December 31, 2010, a total of $42.0 million of unrecognized compensation costs related to unvested stock options and
 unvested restricted stock units issued under the Plans are expected to be recognized over the remaining weighted-average period of
 four years.

        Acquisition-Related Stock Awards

     During 2010, the Company made several acquisitions of subsidiaries that resulted in the issuance of additional equity-based
 awards to employees of the acquired companies.

        CityDeal Acquisition

      In May 2010, the Company acquired CityDeal (see Note 3 "Acquisitions"), which resulted in the issuance of 3,180,115 shares of
 the Company's restricted stock to a trust for current CityDeal employees. The restricted stock vests quarterly generally over a period
 of three years. There were 1,520,925 shares of restricted stock granted on the acquisition date at a fair market value of $3.46 per
 share, which is amortized on a straight-line basis over the requisite service period. These shares are classified in the additional paid-in
 capital on the consolidated balance sheet.

       Additional restricted stock was granted in two separate tranches as part of a contingent earn-out payment related to the
 achievement of financial performance targets. Tranche A consists of 1,607,341 shares of restricted stock and was initially classified as
 a liability on the consolidated balance sheet due to performance characteristics that resulted in a variable number of shares. Changes in
 the fair market values associated with Tranche A restricted stock were recorded as stock-based compensation expense within selling,
 general and administrative expenses on the statement of operations. Upon settlement and issuance of the restricted stock in December
 2010, the restricted stock was reclassified from a liability to additional paid-in capital within stockholders' equity (deficit) based on
 the fair market value on the settlement date. The adjusted fair value of $13.48 per share at settlement is amortized on an accelerated
 basis over the requisite service period.

      Tranche B consists of 51,849 shares of restricted stock and is classified in additional paid-in capital on the consolidated balance
 sheet. The fair value of $3.46 per share for Tranche B restricted stock on the date of grant is amortized on an accelerated basis over
 the requisite service period.

                                                                   F-32




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                               Page 186 of 269
groupon.htm                                                                                                                                 6/2/11 12:35 PM


 Table of Contents


                                                           GROUPON, INC.

                            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 9. STOCK-BASED COMPENSATION (Continued)

     The table below summarizes activity regarding unvested restricted stock issued as part of the CityDeal acquisition during the year
 ended December 31, 2010:

                                                                                              Weighted-
                                                                                            Average Grant
                                                                               Restricted   Date Fair Value
                                                                                 Stock        (per share)
                            Unvested at December 31, 2009                             —     $            —
                             Granted                                           3,180,115    $          8.52
                             Vested                                             (960,510)   $          8.52
                            Unvested at December 31, 2010                      2,219,605    $          8.52

     The fair value of restricted stock that vested during the year ended December 31, 2010 was $8.2 million.

      The Company recognized stock compensation expense of $15.6 million during 2010 related to restricted stock granted as part of
 the CityDeal acquisition, none of which provided the Company with a tax benefit. As of December 31, 2010, a total of $11.6 million
 of unrecognized compensation costs related to unvested restricted stock are expected to be recognized over the remaining weighted-
 average period of two years.

        Subsidiary Awards

      The Company made several other acquisitions during the year ended December 31, 2010 in which the selling shareholders of the
 acquired companies were granted RSUs and stock options ("subsidiary awards") in the Company's subsidiaries. These subsidiary
 awards were issued in conjunction with the acquisitions as a way to retain and incentivize key employees. They generally vest on a
 quarterly basis for a period of three or four years, and dilute the Company's ownership percentage of the corresponding subsidiaries as
 they vest over time. The fair market value of the subsidiary shares granted was determined on a contemporaneous basis. A significant
 portion of the subsidiary awards are classified as liabilities on the consolidated balance sheet due to the existence of put rights that
 allow the selling shareholders to put their stock back to the Company. The liabilities for the subsidiary shares were remeasured on a
 quarterly basis, with the offset to stock-based compensation expense in selling, general and administrative expenses on the
 consolidated statement of operations. Additionally, the Company has call rights on most of the subsidiary awards, which allow it to
 purchase the remaining outstanding shares based on contractual agreements.

      The Company recognized stock compensation expense of $13.5 million during 2010 related to subsidiary awards, none of which
 provided the Company with a tax benefit. As of December 31, 2010, a total of $71.8 million of unrecognized compensation costs
 related to unvested subsidiary awards are expected to be recognized over the remaining weighted-average period of three years. The
 amount of unrecognized compensation costs is management's best estimate based on the current fair market values of each of the
 subsidiaries and could change significantly based on future valuations.

        Common Stock Valuations

      The Company determined the fair value per share of the common stock underlying the stock-based awards through the
 contemporaneous application of a discounted future earnings model initially and then

                                                                  F-33




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                            Page 187 of 269
groupon.htm                                                                                                                                 6/2/11 12:35 PM


 Table of Contents


                                                           GROUPON, INC.

                             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 9. STOCK-BASED COMPENSATION (Continued)

 a discounted cash flow methodology going forward, which was approved by the Board. Stock-based awards were granted to
 employees in the form of stock options, restricted stock units and restricted stock. All such awards granted were exercisable at a price
 per share equal to the per share fair value of the Company's common stock on the date of grant. Determining the fair value of the
 Company's common stock required making complex and subjective judgments. The assumptions used in the valuation models were
 based on future expectations combined with management estimates.

      The discounted future earnings method calculates the present value of future economic benefits using a discount rate based on
 the nature of the business, the level of overall risk and the expected stability of the estimated future economic benefits. The future
 economic benefits are estimated over a period of years sufficient to reach stability of the business, and management expects the
 Company to grow substantially for several years before revenue stabilizes. The discounted cash flow method valued the business by
 discounting future available cash flows to present value at an approximate rate of return. The cash flows were determined using
 forecasts of revenue, net income and debt-free future cash flow. The discount rate was derived using a Capital Asset Pricing Model
 for companies in the "expansion" stage of development. The Company also applied a lack of marketability discount to its enterprise
 value, which took into account that investments in private companies are less liquid than similar investments in public companies.
 There is inherent uncertainty in all of these estimates.

      Summarized below are the significant factors the Board considered in determining the fair value of the common stock underlying
 the Company's stock-based awards granted to its employees:

 Fiscal Year 2008

        The Company raised $4.7 million in net proceeds from the issuance convertible preferred stock in January 2008 and began
        operations with the launch of its first market in Chicago in November 2008.

 Fiscal Year 2009

        First Quarter 2009

        In the first quarter, the Company continued to grow the Chicago market and increase its subscriber base.

        Second Quarter 2009

        In the second quarter, the Company launched its services in four additional markets (New York, Washington D.C., San
        Francisco, and Boston) and the total number of subscribers rose to approximately 0.2 million at June 30, 2009.

        Third Quarter 2009

        In the third quarter, the Company launched its services in 12 new markets across the United States and the total number of
        subscribers increased to approximately 0.6 million at September 30, 2009.

        Fourth Quarter 2009

        In the fourth quarter, the Company raised $29.9 million in net proceeds from the issuance of convertible preferred stock in
        November 2009 and the total number of subscribers increased to

                                                                  F-34




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                            Page 188 of 269
groupon.htm                                                                                                                             6/2/11 12:35 PM


 Table of Contents


                                                         GROUPON, INC.

                             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 9. STOCK-BASED COMPENSATION (Continued)

        approximately 1.8 million at December 31, 2009 as the Company launched its services in 13 additional markets across the
        United States.

 Fiscal Year 2010

        First Quarter 2010

        In the first quarter, the total number of subscribers increased to approximately 3.4 million as of March 31, 2010 as the
        Company launched its services in 13 new markets across the United States. In addition, the Company launched its official
        Groupon application for the Apple iPhone and iPod touch, which provides a more convenient buying and redemption process
        for both consumers and merchants.

        Second Quarter 2010

        In the second quarter, the Company raised $134.9 million in net proceeds from the issuance of convertible preferred stock in
        April 2010. The Company also expanded its global presence to 80 markets and 16 countries in Europe and in Latin America
        with acquisitions. In addition, the Company acquired a mobile technology company in May 2010. The Company also launched
        its services in 20 additional markets across North America, including Toronto and Vancouver, increasing the total number of
        subscribers to approximately 10.4 million as of June 30, 2010.

        Third Quarter 2010

        In the third quarter, the total number of subscribers increased to approximately 21.4 million as of September 30, 2010 as the
        Company launched its services in 22 new markets across North America, including Calgary, Edmonton and Ottawa. The
        Company also expanded its global presence into the Russian Federation and Japan in August 2010. In addition, the Company
        began targeting deals to subscribers based upon their personal preferences and buying history.

        Fourth Quarter 2010

        In the fourth quarter, the Company raised $449.7 million in net proceeds from the issuance of preferred stock in December
        2010. In November 2010, the Company expanded its presence in the Asia-Pacific region and also acquired Ludic Labs, Inc., a
        company that designs and develops local marketing services. The total number of subscribers increased to approximately
        50.6 million as of December 31, 2010 as the Company launched its services in 69 additional markets across North America,
        including 12 markets in Canada.

                                                                F-35




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                        Page 189 of 269
groupon.htm                                                                                                                                                    6/2/11 12:35 PM


 Table of Contents


                                                               GROUPON, INC.

                             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 10. LOSS PER SHARE

     The table below summarizes the calculation of basic and diluted net loss per share for the years ended December 31, 2008, 2009
 and 2010 (in thousands, except share and per share amounts):

                                                                            Year Ended December 31,
                                                                  2008               2009                    2010
                            Net loss                       $          (1,542) $            (1,341) $          (413,386)
                            Dividends on preferred
                              stock                                      (277)             (5,575)               (1,362)
                            Redemption of preferred
                              stock in excess of
                              carrying value                               —                    —              (52,893)
                            Adjustment of
                              redeemable
                              noncontrolling
                              interests to
                              redemption value                             —                    —              (12,425)
                            Preferred stock
                              distributions                              (339)                  —                     —
                            Less: Net loss
                              attributable to
                              noncontrolling
                              interests                                    —                    —               23,746
                            Net loss attributable to
                              common stockholders          $          (2,158) $            (6,916) $          (456,320)
                            Net loss per share:
                            Weighted-average
                              shares outstanding for
                              basic and diluted net
                              loss per share (a)               166,738,129          168,604,142          171,349,386
                            Basic and diluted net
                              loss per share               $             (0.01) $            (0.04) $               (2.66)


                            (a)     Stock options, restricted stock units, performance stock units and convertible preferred shares are not included in the
                                    calculation of diluted net loss per share for the years ended December 31, 2008, 2009 and 2010 because the Company had a
                                    net loss for each year. Accordingly, the inclusion of these equity awards would have had an antidilutive effect on the
                                    calculation of diluted loss per share.


     The following outstanding equity awards are not included in the diluted net loss per share calculation above because they would
 have had an antidilutive effect:

                                                                                 Year Ended December 31,
                            Antidilutive equity awards                   2008            2009                2010
                            Stock options                             2,706,000         6,998,502         13,732,852
                            Restricted stock units                    1,345,000            82,500          1,788,300
                            Convertible preferred shares             40,561,032        66,997,992        117,221,672
                            Performance stock units                          —                 —             600,000
                            Total                                    44,612,032        74,078,994        133,342,824

 11. FAIR VALUE MEASUREMENTS

       Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an
 orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that
 should be determined based on assumptions that market participants would use in pricing an asset or a liability.

                                                                         F-36




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                                               Page 190 of 269
groupon.htm                                                                                                                               6/2/11 12:35 PM


 Table of Contents


                                                           GROUPON, INC.

                            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 11. FAIR VALUE MEASUREMENTS (Continued)

      To increase the comparability of fair value measures, the following hierarchy prioritizes the inputs to valuation methodologies
 used to measure fair value:

        Level 1—Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

        Level 2—Include other inputs that are directly or indirectly observable in the marketplace.

        Level 3—Unobservable inputs that are supported by little or no market activities. Valuations derived from valuation
        techniques in which one or more significant inputs or significant value drivers are unobservable, such as pricing models,
        discounted cash flow models and similar techniques not based on market, exchange, dealer or broker-traded transactions.

      In determining fair value, the Company uses various valuation approaches within the fair value measurement framework. The
 valuation methodologies used for the Company's instruments measured at fair value and their classification in the valuation hierarchy
 are summarized below:

        Cash equivalents—Cash equivalents primarily consisted of highly-rated commercial paper and money market funds. The
        Company classified cash equivalents as Level 1, due to their short-term maturity, and measured the fair value based on quoted
        prices in active markets for identical assets.

        Contingent consideration—During the year ended December 31, 2010, the Company had obligations to transfer additional
        common stock to the former owners of certain acquirees as part of the exchange for control of these acquirees, if specified
        future operational objectives were met. The Company determined the acquisition-date fair value of these contingent liabilities,
        based on the likelihood of contingent earn-out payments, as part of the consideration transferred, and subsequently remeasured
        the fair value using either a cost or income approach that are primarily determined based on the present value of future cash
        flows using internal models. The Company classified this financial liability as Level 3, due to the lack of relevant observable
        inputs and market activity.

      The following table summarizes the Company's assets and liabilities that are measured at fair value on a recurring basis (in
 thousands):

                                                                           Fair Value Measurement at
                                                                              Reporting Date Using
                                                                Quoted Prices
                                                                  in Active        Significant
                                                                 Markets for          Other         Significant
                                                  As of           Identical        Observable      Unobservable
                                               December 31,         Assets           Inputs           Inputs
                           Description             2009           (Level 1)         (Level 2)        (Level 3)
                           Assets:
                            Cash
                               equivalents    $      10,500 $         10,500 $             — $               —

                                                                  F-37




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                          Page 191 of 269
groupon.htm                                                                                                                              6/2/11 12:35 PM


 Table of Contents


                                                         GROUPON, INC.

                            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 11. FAIR VALUE MEASUREMENTS (Continued)



                                                                         Fair Value Measurement at
                                                                            Reporting Date Using
                                                              Quoted Prices
                                                                in Active        Significant
                                                               Markets for          Other         Significant
                                                 As of          Identical        Observable      Unobservable
                                              December 31,        Assets           Inputs           Inputs
                           Description            2010          (Level 1)         (Level 2)        (Level 3)
                           Assets:
                            Cash
                               equivalents   $      23,028 $        23,028 $              — $               —

     There were no changes to the Company's valuation techniques used to measure asset and liability fair values on a recurring basis
 during 2009 and 2010.

      During the year ended December 31, 2010, the Company recorded contingent consideration as part of the CityDeal acquisition,
 which was subsequently remeasured on a recurring basis until settlement occurred in December 2010. As a result, the Company
 recorded a corresponding charge of $204.2 million associated with this obligation, which was reported separately as acquisition-
 related expenses in the consolidated statement of operations with other acquisition-related expenses. The charge resulted primarily
 due to the significant increase in the value of the Company's common stock from the original valuation date until the date the
 contingency was settled. As the contingent consideration was settled during 2010, no amounts were included in the table above.

     The Company's other financial instruments consist primarily of accounts receivable, accounts payable, accrued merchant payable,
 accrued expenses and loans from related parties. The carrying value of these assets and liabilities approximate their respective fair
 values as of December 31, 2009 and 2010, due to their short maturity. At December 31, 2009 and 2010 no material fair value
 adjustments were required for non-financial assets and liabilities.

 12. INCOME TAXES

      On January 15, 2008, the Company completed a conversion pursuant to which The Point, LLC, converted to The Point, Inc., a
 corporation. As a limited liability company, the Company was recognized as a partnership for federal income tax purposes. All items
 of income, expense, gain and loss generally were reportable on the tax returns of members of The Point, LLC. Accordingly, the
 Company did not provide for income taxes at the company level prior to conversion to a corporation.

     The components of pretax loss for the years ended December 31, 2008, 2009 and 2010 were as follows (in thousands):

                                                                               Year Ended December 31,
                                                                        2008           2009          2010
                           United States                             $ (1,542) $ (1,093) $ (222,594)
                           International                                   —         —     (197,466)
                           Loss before income taxes                  $ (1,542) $ (1,093) $ (420,060)

                                                                 F-38




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                         Page 192 of 269
groupon.htm                                                                                                                          6/2/11 12:35 PM


 Table of Contents


                                                          GROUPON, INC.

                           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 12. INCOME TAXES (Continued)

      The provision (benefit) for income taxes at December 31, 2008, 2009 and 2010 consisted of the following components (in
 thousands):

                                                                              Year Ended December 31,
                                                                            2008     2009       2010
                          Current taxes:
                           U.S. federal                                    $ — $ 226 $              —
                           State                                             —    22                57
                           International                                     —    —                618
                              Total current taxes                              —       248         675
                          Deferred taxes:
                           U.S. federal and state                              —        —            —
                           International                                       —        —        (7,349)
                              Total deferred taxes                           —    —    (7,349)
                          Provision (benefit) for income taxes             $ — $ 248 $ (6,674)

     The items accounting for differences between income taxes computed at the federal statutory rate and the provision for income
 taxes were as follows:

                                                                              Year Ended December 31,
                                                                            2008       2009       2010
                          U.S. federal income tax rate                       34.0%      34.0%      35.0%
                           Impact of foreign differential                      —          —        (1.7)
                           State income taxes, net of federal benefits        4.8        2.4        0.6
                           Valuation allowance                              (38.4)     (57.5)     (12.0)
                           Revaluation of shares and other                   (0.4)      (0.7)     (20.2)
                           Effect of state rate change on deferred items       —        (0.9)      (0.1)
                                                                               —%      (22.7)%      1.6%

 Supplemental Disclosure for Tax Impact of Noncontrolling Interest

                                                                              2008      2009     2010
                          Less: amount attributable to noncontrolling
                            interest                                            —%        —%      (1.6)%
                          Effective tax rate for noncontrolling interest        —%        —%        —%

                                                                 F-39




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                     Page 193 of 269
groupon.htm                                                                                                                                   6/2/11 12:35 PM


 Table of Contents


                                                             GROUPON, INC.

                             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 12. INCOME TAXES (Continued)

     The deferred income tax assets and liabilities consisted of the following components (in thousands):

                                                                                           December 31,
                                                                                        2009         2010
                            Deferred tax assets:
                             Reserves and allowances                                $    1,275 $      5,691
                             Intangible assets                                               8           —
                             Foreign exchange loss                                          —           226
                             Charitable contributions                                       52          153
                             Deferred rent                                                  —           349
                             Tax credits                                                   164          327
                             Stock-based compensation                                       33        2,138
                             Net operating loss carryforward                                44       73,803
                                Total deferred tax assets                                1,576       82,687
                                Less valuation allowance                                (1,528)     (55,956)
                                 Deferred tax assets, net of valuation
                                    allowance                                               48       26,731
                            Deferred tax liabilities:
                             Unearned revenue for tax                                       (12)    (17,525)
                             Intangible assets                                               —      (11,249)
                             Fixed assets                                                   (36)     (1,227)
                                Net deferred tax liability                          $       — $       (3,270)

     The deferred tax amounts have been classified on the consolidated balance sheets as follows:

                                                                                           December 31,
                                                                                        2009         2010
                            Assets:
                              Deferred income taxes, non-current                    $       — $      14,544
                            Liabilities:
                              Deferred income taxes, current                                —       (17,210)
                              Deferred income taxes, non-current                            —          (604)

      In determining the need for a valuation allowance, the Company weighs both positive and negative evidence in the various taxing
 jurisdictions in which it operates to determine whether it is more likely than not that its deferred tax assets are recoverable. In
 assessing the ultimate realizability of its net deferred tax assets, the Company considers its past performance, available tax strategies,
 and expected future taxable income. At December 31, 2009 and 2010, the Company recorded a valuation allowance of $1.5 million
 and $56.0 million, respectively, against its domestic and foreign net deferred tax assets, as it believes it is more likely than not that
 these benefits will not be realized.

     At December 31, 2009 and 2010, the Company had $0 and $6.3 million of federal net operating loss carryforwards, respectively,
 which will expire beginning in 2026. In addition, at December 31, 2009 and 2010, the Company has $0.2 million and $0.3 million of
 federal research tax credit carryforwards, respectively, which will expire beginning in 2026. At December 31, 2010 the Company also
 has

                                                                   F-40




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                              Page 194 of 269
groupon.htm                                                                                                                                 6/2/11 12:35 PM


 Table of Contents


                                                           GROUPON, INC.

                            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 12. INCOME TAXES (Continued)



 $223.1 million of foreign net operating loss carryforwards, a significant portion of which carryforward for an indefinite period.

      The Company is subject to taxation in the United States federal and various state and foreign jurisdictions. Significant judgment
 is required in determining the worldwide provision for income taxes and recording the related income tax assets and liabilities. The
 Company's practice for accounting for uncertainty in income taxes is to recognize the financial statement benefit of a tax position
 only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax
 positions meeting the more-likely-than-not criteria, the amount recognized in the financial statements is the largest benefit that has a
 greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. All of the Company's tax
 years are currently open to examination by the U.S. federal, state and foreign tax authorities. At December 31, 2009 and 2010, the
 Company did not have any material unrecognized tax benefits recorded on its consolidated balance sheets.

     The Company's practice is to recognize interest and penalties related to income tax matters in income tax expense. The Company
 did not recognize any interest or penalties in its consolidated statement of operations for the years ended December 31, 2008, 2009
 and 2010.

      At December 31, 2010, no provision has been made for U.S. federal and state taxes related to undistributed earnings of the
 Company's foreign subsidiaries, as the Company currently does not expect to remit those earnings in the foreseeable future.
 Determination of the amount of unrecognized U.S. deferred tax liability related to undistributed earnings of the Company's foreign
 subsidiaries is not practical due to the complexities associated with the related calculation.

 13. SEGMENT INFORMATION

      The Company has organized its operations into two principal segments: North America, which represents the United States and
 Canada; and International, which represents the rest of the Company's global operations. Segment operating results reflect earnings
 before stock-based compensation, acquisition-related expenses, interest and other income (expense), net, and provision (benefit) for
 income taxes. Segment information reported below represents the operating segments of the Company for which separate information
 is available and for which segment results are evaluated regularly by the Company's chief operating decision-maker (i.e., chief
 executive officer) in assessing performance and allocating resources.

       Revenues for each segment are based on the geographic market that sells the Groupons. There are no internal revenue
 transactions or allocations of costs between reporting segments. Revenue and profit or

                                                                  F-41




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                            Page 195 of 269
groupon.htm                                                                                                                                                      6/2/11 12:35 PM


 Table of Contents


                                                               GROUPON, INC.

                            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 13. SEGMENT INFORMATION (Continued)



 loss information by reportable segment reconciled to consolidated net income (loss) was as follows (in thousands):

                                                                                        Year Ended December 31,
                                                                                 2008           2009          2010
                           North America
                            Revenue (1)                                      $       94 $ 30,471 $             448,317
                            Segment operating expenses(2)                         1,702   31,433               458,753
                             Segment operating loss                              (1,608)          (962)         (10,436)
                           International
                             Revenue                                         $          — $          — $       265,048
                             Segment operating expenses(2)                              —            —         435,605
                            Segment operating loss                                      —            —        (170,557)
                           Consolidated
                            Revenue                                          $       94 $ 30,471 $             713,365
                            Segment operating expenses(2)                         1,702   31,433               894,358
                             Segment operating loss                              (1,608)          (962)       (180,993)
                             Stock-based compensation                               (24)          (115)        (36,168)
                             Acquisition-related                                     —              —         (203,183)
                             Interest and other income (expense),
                                net                                                     90          (16)             284
                             Loss before income taxes                            (1,542)        (1,093)       (420,060)
                             Provision (benefit) for income taxes                    —             248          (6,674)
                             Net loss                                        $ (1,542) $ (1,341) $ (413,386)


                           (1)     North America contains revenue from the United States of $0.1 million, $30.5 million and $427.3 million for the years ended
                                   December 31, 2008, 2009 and 2010, respectively.

                           (2)     Represents operating expenses, excluding stock-based compensation, acquisition-related expense and interest and other
                                   income (expense), net, which are not allocated to segments.


     No single customer or individual foreign country accounted for more than 10% of net revenue during the last three years.

     Total assets by reportable segment reconciled to consolidated assets were as follows (in thousands):

                                                                                                    December 31,
                                                                                                 2009         2010
                           North America                                                      $ 14,962 $ 104,606
                           International                                                            —    276,964
                             Consolidated total                                               $ 14,962 $ 381,570

                                                                        F-42




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                                                 Page 196 of 269
groupon.htm                                                                                                                             6/2/11 12:35 PM


 Table of Contents


                                                              GROUPON, INC.

                            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 13. SEGMENT INFORMATION (Continued)

     Property and equipment, net, by reportable segment was as follows (in thousands):

                                                                                                     December 31,
                                                                                                   2009      2010
                           North America(1)                                                      $ 274 $          9,880
                           International                                                            —             6,610
                             Consolidated total                                                  $ 274 $ 16,490


                           (1)    All property and equipment included in North America are located in the United States.


     Property and equipment located in Japan represented approximately 20% of consolidated property and equipment, net. There
 were no other individual countries located outside of the United States that represented more than 10% of consolidated property and
 equipment, net.

 14. RELATED PARTIES

        CityDeal Loan Agreement

      In May 2010, the Company and the former CityDeal shareholders (including Oliver Samwer, Marc Samwer and Alexander
 Samwer, collectively, the "Samwers") entered into a loan agreement to provide CityDeal with a $20.0 million term loan facility (the
 "facility"). The facility subsequently was amended in July 2010 increasing the total commitment to $25.0 million. Both the Company
 and the former CityDeal shareholders each were obligated to make available $12.5 million under the terms of the facility, both of
 which were fully disbursed to CityDeal during the year ended December 31, 2010. Proceeds from the facility were used to fund
 operational and working capital needs. The outstanding balance accrues interest at a rate of 5% per year and is payable upon
 termination of the facility, which is the earlier of any prepayments or December 2012. The outstanding balance payable to the former
 CityDeal shareholders at December 31, 2010 of $13.0 million, along with corresponding accrued interest of $0.1 million, is included
 in "Due to related parties" on the consolidated balance sheet. The amount due to the former CityDeal shareholders exceeds the amount
 of the facility in US dollars as a result of changes in foreign currency exchange rates throughout the year ended December 31, 2010.
 The amounts due to the Company from CityDeal under the facility were not included in the consolidated balance sheet due to the
 elimination of intercompany transactions.

        Management Services

     The Company has entered into agreements with Rocket Internet GmbH ("Rocket") and various other companies in which the
 Samwers have direct or indirect ownership interests, to provide information technology, marketing and other services to the Company.
 The Company paid $1.4 million to Rocket and a total of $0.2 million to these other companies for services rendered for the year
 ended December 31, 2010, which are classified within selling, general and administrative expenses in the consolidated statement of
 operations. As of December 31, 2010, $0.2 million was due to Rocket, which was recorded in "Due to related parties" on the
 consolidated balance sheet.

                                                                       F-43




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                        Page 197 of 269
groupon.htm                                                                                                                               6/2/11 12:35 PM


 Table of Contents


                                                          GROUPON, INC.

                            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 14. RELATED PARTIES (Continued)

        Merchant Contracts

      The Company entered into several agreements with merchant companies in which the Samwers have direct or indirect ownership
 interests, and, in some cases, who are also directors of these companies, pursuant to which the Company conducts its business by
 offering goods and services at a discount with these merchants. The Company paid $1.1 million to these companies under the
 merchant agreements for the year ended December 31 2010, which was recorded in cost of revenue in the consolidated statements of
 operations. The Company did not have any amounts due to these companies as of December 31, 2010.

        Consulting Agreements

      In May 2010, the Company entered into consulting agreements with the Samwers, pursuant to which they advise CityDeal, the
 Company's European subsidiary, with respect to its goals and spend at least fifty-percent of their work hours consulting for CityDeal.
 The Company reimburses the Samwers for travel and other expenses incurred in connection with their service to the Company. They
 do not receive any additional compensation from the Company in connection with their consulting roles. The terms of their consulting
 agreements expire in October 2011. The Company paid $0.1 million to reimburse the Samwers for travel and other expenses incurred
 for the year ended December 31, 2010, which are classified within selling, general and administrative expenses in the consolidated
 statement of operations. The Company had no amounts due to the Samwers as of December 31, 2010.

        Sublease Agreements

      The Company has entered into agreements with various companies in which certain of the Company's current and former Board
 members have direct or indirect ownership interests and, in some cases, who are also directors of these companies, pursuant to which
 the Company subleased a portion of office space in Chicago from these companies. The Company paid $0.1 million and $0.3 million
 to these companies under the sublease agreements for the years ended December 31, 2009 and 2010, respectively, which was
 classified within selling, general and administrative expenses in the consolidated statements of operations. The Company did not have
 any amounts due to these companies as of December 31, 2009 and 2010.

        Legal Services

      The Company has engaged the law firm of Lefkofsky & Gorosh, P.C. ("L&G"), whose founder (Steven P. Lefkofsky) is the
 brother of the Company's co-founder and Executive Chairman of the Board, to provide certain legal services to the Company. The
 Company paid less than $0.1 million and $0.3 million, respectively to L&G for legal services rendered for the years ended
 December 31, 2009 and 2010. The Company had $0 and approximately $0.1 million due to L&G as of December 31, 2009 and 2010.

 15. SUBSEQUENT EVENTS

        Preferred Stock Issuance

      In January 2011, the Company authorized the sale and additional issuance of 15,827,796 shares of Series G Preferred for
 $496.0 million in gross proceeds (or $492.5 million, net of issuance costs), and used $371.5 million of the proceeds from the sale to
 redeem shares of its outstanding common stock and preferred stock held by certain shareholders and the remainder for working capital
 and general corporate purposes. Included in the additional stock issuance was 126,622 shares of Series G Preferred (or the

                                                                 F-44




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                          Page 198 of 269
groupon.htm                                                                                                                                6/2/11 12:35 PM


 Table of Contents


                                                          GROUPON, INC.

                             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 15. SUBSEQUENT EVENTS (Continued)

 equivalent of $4.0 million) the Company transferred to its placement agent in exchange for financial advisory services provided.
 Holders of Series G Preferred have similar rights and preferences as other Series Preferred stockholders, with the exception of the
 following: (1) Series G Preferred holders are not entitled to any annual preferred dividends, but are entitled to receive, on an as-
 converted to voting common stock basis, any other dividend or distribution when, as and if declared by the Board, participating
 equally with the holders of common stock and the holders of Series Preferred; and (2) in the event of liquidation, the Series G
 Preferred holders are entitled, before any distribution or payment is made upon any Series B Preferred, Series D Preferred, Series E
 Preferred, Series F Preferred or common stock, to be paid an amount per share equal to 100% of the Series G Preferred original price
 plus all accrued and unpaid dividends on the Series G Preferred.

        Qpod Stock Purchase

     In January 2011, the Company entered into a Stock Purchase Agreement with other shareholders and certain founding members
 of Qpod (collectively, the "other shareholders"), whereby the Company purchased an additional percentage of the shares of Qpod from
 the other shareholders of Qpod, increasing the Company's ownership in Qpod to 90%. Under the terms of the agreement, the
 Company acquired 21,812 shares of the total issued and outstanding capital stock of Qpod, on a fully-diluted basis, in exchange for
 $25.0 million in cash.

        Other Acquisitions

      In January 2011, the Company acquired certain other entities that provide daily deals and online marketing services substantially
 similar to the Company for an aggregate purchase price of $20.9 million. The primary reasons for these acquisitions were to utilize
 the collective buying power websites to further grow the Company's subscribers and provide strategic entries into new and expanding
 markets in India, Malaysia, South Africa and the Middle East.

      The acquisitions will be accounted for using the purchase method of accounting and the operations of these acquired companies
 will be included in the consolidated financial statements from their respective date of the acquisition. The financial effect of these
 acquisitions, individually and in the aggregate, was not material to the Company's consolidated financial statements. Pro forma results
 of operations have not been presented because the effects of these business combinations, individually and in the aggregate, were not
 material to the Company's consolidated results of operations as they were start-up businesses.

        Investments in Equity Interests

      In January 2011, the Company acquired 50 percent of the ordinary shares of Restaurantdiary.com Limited ("Restaurantdiary") in
 exchange for $1.3 million. Restaurantdiary is a private limited company organized under the laws of the United Kingdom that owns
 the internet media property called restaurantdiary.com. The Company also acquired 40 percent of the ordinary shares of E-Commerce
 King Limited ("E-Commerce"), a company organized under the laws of the British Virgin Islands, in exchange for $4.0 million. The
 Company entered into the joint venture along with Rocket Asia GmbH & Co. KG ("Rocket Asia"), an entity controlled by the
 Samwers. Rocket Asia acquired 10 percent of the ordinary shares in E-Commerce. E-Commerce subsequently established a wholly
 foreign owned enterprise, which created a domestic operating company headquartered in Beijing, China ("GaoPeng.com"), to operate
 a business offering localized group-buying discounts for products and services to individual consumers and

                                                                  F-45




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                           Page 199 of 269
groupon.htm                                                                                                                             6/2/11 12:35 PM


 Table of Contents


                                                         GROUPON, INC.

                            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 15. SUBSEQUENT EVENTS (Continued)

 businesses via internet websites and social and interactive media in various markets throughout China. GaoPeng.com began offering
 daily deals in March in Beijing and Shanghai with expansion to other major cities in China to follow.

      The investments in equity interests will be accounted for using the equity method and the Company will record its share of the
 operating results from the respective date of the investment. Pro forma results of operations have not been presented because the
 financial effect of these investments in equity interests, individually and in the aggregate, were not material to the Company's
 consolidated results of operations.

        Newly Elected Director

      In February 2011, the Company appointed Howard Schultz to the Company's Board of Directors. Mr. Schultz is chairman,
 president and chief executive officer of Starbucks Corporation.

        Non-voting Common Stock Issuance

      In February 2011, the Board authorized the issuance and sale, by way of a private placement, of 1,090,830 shares of non-voting
 common stock for $17.2 million in gross proceeds, and used $17.0 million of the proceeds from the sale to redeem shares of its
 outstanding common stock held by certain shareholders and the remainder for working capital and general corporate purposes.
 Included in the stock issuance of non-voting common stock were 949,668 shares sold to Mr. Schultz and to several partnerships of
 Maveron LLC, a venture capital firm co-founded by Mr. Schultz, for an aggregate purchase price of $15.0 million.

        Facility Repayment

     In March 2011, the CityDeal repaid all amounts outstanding to the former CityDeal shareholders related to the facility described
 in Note 14 "Related Parties."

                                                                F-46




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                        Page 200 of 269
groupon.htm                                                                                                                                     6/2/11 12:35 PM


 Table of Contents


                                                                   GROUPON, INC.

                                 CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

                                                           (in thousands, except share data)

                                                                                                                             March 31, 2011
                                                                                                                              Pro forma for
                                                                                                                             distribution and
                                                                                           December 31,      March 31,       recapitalization
                                                                                               2010            2011               (Note 2)
                                                                                                            (Unaudited)        (Unaudited)
              Assets
              Current assets:
               Cash and cash equivalents                                                   $    118,833     $    208,688
               Accounts receivable, net                                                          42,407           60,717
               Prepaid expenses and other current assets                                         12,615           21,324

                  Total current assets                                                          173,855          290,729                   —
              Property and equipment, net                                                        16,490           26,928
              Goodwill                                                                          132,038          154,438
              Intangible assets, net                                                             40,775           43,052
              Investments in equity interests                                                        —             4,486
              Deferred income taxes, non-current                                                 14,544           15,021
              Other non-current assets                                                            3,868            6,756

                 Total Assets                                                              $    381,570     $    541,410     $             —
              Liabilities and Stockholders' Equity
              Current liabilities:
               Accounts payable                                                            $     57,543     $     37,907
               Accrued merchant payable                                                         162,409          290,680
               Accrued expenses                                                                  98,323          130,181
               Due to related parties                                                            13,321              918
               Deferred income taxes, current                                                    17,210           14,957
               Other current liabilities                                                         21,613           44,834

                 Total current liabilities                                                      370,419          519,477                   —
              Deferred income taxes, non-current                                                    604            1,437
              Other non-current liabilities                                                       1,017           13,353

                 Total Liabilities                                                              372,040          534,267                   —
              Commitments and contingencies (see Note 8)
              Redeemable noncontrolling interests                                                 2,983            2,744
              Groupon, Inc. Stockholders' Equity
              Series B, convertible preferred stock, $.0001 par value, 199,998 shares
                authorized, issued and outstanding at December 31, 2010 and March 31,
                2011                                                                                 —                —
              Series D, convertible preferred stock, $.0001 par value, 6,560,174 shares
                authorized and issued, 6,258,297 shares outstanding at December 31, 2010
                and 5,956,420 shares outstanding at March 31, 2011                                     1              —
              Series E, convertible preferred stock, $.0001 par value, 4,406,160 shares
                authorized and issued, 4,127,653 shares outstanding at December 31, 2010
                and 4,060,183 shares outstanding at March 31, 2011                                   —                —
              Series F, convertible preferred stock, $.0001 par value, 4,202,658 shares
                authorized, issued and outstanding at December 31, 2010 and March 31,
                2011                                                                                   1                1
              Series G, convertible preferred stock, $.0001 par value, 30,075,690 shares
                authorized, 14,245,018 shares issued and outstanding at December 31,
                2010 and 30,072,814 shares issued and outstanding at March 31, 2011,
                liquidation preference of $450,000 and $950,000 at December 31, 2010
                and March 31, 2011, respectively                                                       1                3
              Voting common stock, $.0001 par value, 500,000,000 shares authorized,
                211,495,998 shares issued and 165,616,260 shares outstanding at
                December 31, 2010 and 211,495,998 shares issued and 144,681,311 shares
                outstanding at March 31, 2011                                                          4                4
              Non-voting convertible common stock, $.0001 par value, 100,000,000 shares
                authorized, 5,864,486 shares issued and 5,079,896 shares outstanding at
                December 31, 2010 and 8,230,928 shares issued and 5,997,640 shares
                outstanding at March 31, 2011                                                        —                —
              Treasury stock, at cost, 46,664,328 shares at December 31, 2010 and
                69,047,975 shares at March 31, 2011                                             (503,173)        (856,723)
              Additional paid-in capital                                                         921,122        1,373,173
              Stockholder receivable                                                                (286)            (144)



file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                                Page 201 of 269
groupon.htm                                                                                                             6/2/11 12:35 PM


              Accumulated deficit                                                   (419,468)       (522,136)
              Accumulated other comprehensive income                                   9,875          12,908

                 Total Groupon, Inc. Stockholders' Equity                              8,077           7,086        —
              Noncontrolling interests                                                (1,530)         (2,687)

                 Total Equity                                                          6,547          4,399         —

                 Total Liabilities and Equity                                  $     381,570    $   541,410     $   —


                                          See Notes to Condensed Consolidated Financial Statements.

                                                                    F-47




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                        Page 202 of 269
groupon.htm                                                                                                             6/2/11 12:35 PM


 Table of Contents


                                                        GROUPON, INC.

                     CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

                                            (in thousands, except per share amounts)

                                                                                      Three Months Ended March 31,
                                                                                        2010              2011
              Revenue                                                             $        44,236 $         644,728
              Cost of revenue                                                              24,251           374,728
              Gross profit                                                                 19,985           270,000
              Operating expenses:
               Marketing                                                                    3,988           208,209
               Selling, general and administrative                                          7,426           178,939
                  Total operating expenses                                                 11,414            387,148
              Income (loss) from operations                                                 8,571           (117,148)
              Interest and other income, net                                                    3              1,060
              Equity-method investment activity, net of tax                                    —                (882)
              Income (loss) before provision for income taxes                               8,574           (116,970)
              Provision (benefit) for income taxes                                             23             (3,079)
              Net income (loss)                                                             8,551           (113,891)
              Less: net loss attributable to noncontrolling interests                          —              11,223
              Net income (loss) attributable to Groupon, Inc.                               8,551           (102,668)
              Dividends on preferred stock                                                   (523)                —
              Redemption of preferred stock in excess of carrying value                        —             (34,327)
              Adjustment of redeemable noncontrolling interests to redemption
                 value                                                                         —              (9,485)
              Net income (loss) attributable to common stockholders               $         8,028 $         (146,480)
              Net income (loss) per share:
               Basic                                                              $           0.03 $           (0.95)
               Diluted                                                            $           0.03 $           (0.95)
              Weighted average number of shares outstanding:
               Basic                                                                  172,966,829       153,924,706
               Diluted                                                                245,962,571       153,924,706

                                     See Notes to Condensed Consolidated Financial Statements.

                                                               F-48




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                        Page 203 of 269
groupon.htm                                                                                                                                                                6/2/11 12:35 PM


 Table of Contents


                                                                         GROUPON, INC.

              CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)

                                                          (in thousands, except share amounts)

                                                                                Groupon, Inc. Stockholders' Equity
                                 Series B, D, E, F,
                                 and G Preferred                                                                                        Total
                                       Stock                Common Stock                Additional                      Accumulated Groupon Inc.     Non-
                                                                               Treasury Paid-In Stockholder Accumulated Other Comp. Stockholders' controlling         Total
                                  Shares       Amount       Shares       Amount Stock    Capital   Receivable  Deficit    Income       Equity      Interests          Equity
              Balance at
                December 31,
                2010             29,033,624 $         3 170,696,156 $          4 $(503,173)$   921,122 $      (286)$   (419,468)$    9,875 $     8,077 $   (1,530)$     6,547
              Net loss                     —       —                 —        —        —           —            —      (102,668)        —      (102,668)   (1,157) (103,825)
              Foreign currency
                translation                —       —                 —        —        —           —            —           —        3,033       3,033        —         3,033
              Comprehensive
                loss                    —          —                 —        —        —           —            —           —           —       (99,635)      — (100,792)
              Adjustment of
                redeemable
                noncontrolling
                interests to
                redemption
                value                   —          —                 —        —        —        (9,485)         —           —           —        (9,485)      —        (9,485)
              Proceeds from
                issuance of
                shares (net of
                issuance costs) 15,827,796            2     1,090,830         —        —       509,690          —           —           —      509,692        —       509,692
              Exercise of stock
                options                 —          —        1,229,944         —        —         1,001          —           —           —        1,001        —         1,001
              Repayment of
                receivable              —          —                 —        —        —           —           142          —           —          142        —           142
              Vesting of
                restricted stock
                units                   —          —          45,668          —        —           —            —           —           —           —         —            —
              Stock-based
                compensation
                expense                 —          —                 —        —        —        10,847          —           —           —       10,847        —        10,847
              Redemption of
                preferred stock   (369,347)        (1)               —        —        —       (35,002)         —           —           —       (35,003)      —       (35,003)
              Repurchase of
                common stock            —          — (22,383,647)             — (353,550)          —            —           —           —      (353,550)      — (353,550)
              Purchase of
                addditional
                shares in
                majority-
                owned
                subsidiary              —          —                 —        —        —       (25,000)         —           —           —       (25,000)      —       (25,000)
              Balance at
                March 31,
                2011             44,492,073 $         4 150,678,951 $          4 $(856,723)$ 1,373,173 $      (144)$   (522,136)$   12,908 $     7,086 $   (2,687)$     4,399


                                           See Notes to Condensed Consolidated Financial Statements.

                                                                               F-49




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                                                               Page 204 of 269
groupon.htm                                                                                                                             6/2/11 12:35 PM


 Table of Contents


                                                                        GROUPON, INC.

                       CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

                                                                         (in thousands)

                                                                                                               Three Months
                                                                                                              Ended March 31,
                                                                                                             2010       2011
              Operating activities
              Net income (loss)                                                                          $    8,551     $   (113,891)
              Adjustments to reconcile net income (loss) to net cash provided by operating activities:
               Depreciation and amortization                                                                    131           7,598
               Stock-based compensation                                                                         116          18,864
               Deferred income taxes                                                                             —            (3,384)
               Losses in equity interests                                                                        —              882
               Change in assets and liabilities, net of acquisitions:
                 Accounts receivable                                                                          (1,139)        (16,049)
                 Prepaid expenses and other current assets                                                    1,148           (8,288)
                 Accounts payable                                                                               556          (22,465)
                 Accrued merchant payable                                                                     5,045         121,173
                 Accrued expenses and other current liabilities                                               (1,375)        36,248
                 Due to related parties                                                                          —            1,157
               Other                                                                                           (136)          (3,905)
              Net cash provided by operating activities                                                      12,897          17,940
              Investing activities
              Purchases of property and equipment                                                              (863)         (10,962)
              Acquisitions of businesses, net of acquired cash                                                   —            (2,818)
              Purchases of intangible assets                                                                     —              (214)
              Changes in restricted cash                                                                        200               —
              Purchases of investments in subsidiaries                                                           —           (25,000)
              Purchases of equity investments                                                                    —            (5,300)
              Net cash used in investing activities                                                            (663)         (44,294)
              Financing activities
              Issuance of shares, net of issuance costs                                                          —           509,692
              Repayment of loans from related parties                                                            —           (14,358)
              Repurchase of common stock                                                                         —          (348,550)
              Proceeds from exercise of stock options                                                             2              325
              Redemption of preferred stock                                                                      —           (35,003)
              Net cash provided by financing activities                                                            2        112,106
              Effect of exchange rate changes on cash and cash equivalents                                       —            4,103

              Net increase in cash and cash equivalents                                                      12,236          89,855

              Cash and cash equivalents, beginning of period                                                 12,313         118,833
              Cash and cash equivalents, end of period                                                   $ 24,549       $   208,688
              Supplemental disclosure of cash flow information
               Income tax payments                                                                       $       —      $       186
               Cash interest payments                                                                    $       —      $       236

              Non-cash investing activity
               Capital expenditures incurred not yet paid                                                $      583     $     1,232
               Contingent consideration given in connection with acquisitions                            $       —      $    15,920

              Non-cash financing activity
               Dividends accrued                                                                         $      523     $        —


                                            See Notes to Condensed Consolidated Financial Statements.

                                                                                F-50




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                        Page 205 of 269
groupon.htm                                                                                                                                6/2/11 12:35 PM


 Table of Contents


                                                          GROUPON, INC.

                  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 1. DESCRIPTION OF BUSINESS

      Groupon, Inc., together with its consolidated subsidiaries (the "Company"), operates a local e-commerce marketplace
 (www.Groupon.com) that connects merchants to consumers by offering goods and services at a discount. The Company, which
 commenced operations in November 2008, creates a new way for local merchants to attract new customers, while providing
 consumers with savings and helping them discover what to do, eat, see and buy in the places they live and work.

 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

        Principles of Consolidation

      The condensed consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries.
 Intercompany balances and transactions have been eliminated. Investments in entities in which the Company can exercise significant
 influence, but does not own a majority equity interest or otherwise control, are accounted for using the equity method and are included
 as investments in equity interests on the condensed consolidated balance sheet. See Note 6 "Investments in Equity Interests." The
 Company has included the results of operations of acquired companies from the date of the acquisition.

        Basis of Presentation

      The accompanying condensed consolidated financial statements of the Company were prepared in accordance with United States
 generally accepted accounting principles ("U.S. GAAP") for interim financial information. Certain information and disclosures
 normally included in consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted.
 Accordingly, these condensed consolidated financial statements should be read in conjunction with the Company's historical
 consolidated financial statements and accompanying notes included in this Form S-1 Registration Statement. In the opinion of
 management, all adjustments, consisting of a normal recurring nature, considered necessary for a fair presentation have been included
 in the condensed consolidated financial statements. The operating results for the three months ended March 31, 2011 are not
 necessarily indicative of the results expected for the full year ending December 31, 2011.

        Pro Forma for Distribution and Recapitalization

     The pro forma balance sheet gives effect to the one-time mandatory payment of $0.8 million for the accrued dividends payable to
 the Company's preferred shareholders and the conversion of Series D Convertible Preferred Stock ("Series D Preferred"), Series E
 Convertible Preferred Stock ("Series E Preferred"), Series F Convertible Preferred Stock ("Series F Preferred") and Series G
 Convertible Preferred Stock ("Series G Preferred") into 145,461,194 shares of newly-issued common stock of the Company.

        Stock Splits

      In May 2010, the Company's Board of Directors (the "Board") approved a resolution to effect a three-for-one stock split of the
 Company's common stock with no corresponding change to the par value. The stock split became effective in August 2010. The
 Board also approved a two-for-one stock split of the Company's common stock in December 2010 with no corresponding change to
 the par value, which became effective in January 2011. All common share numbers and per share amounts for all periods presented
 have been adjusted retroactively to reflect both the three-for-one and the two-for-one stock splits.

                                                                  F-51




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                           Page 206 of 269
groupon.htm                                                                                                                                6/2/11 12:35 PM


 Table of Contents


                                                          GROUPON, INC.

           NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

        Use of Estimates

      The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions
 that affect the reported amounts and classifications of assets and liabilities, revenues and expenses, and the related disclosures of
 contingent liabilities in the condensed consolidated financial statements and accompanying notes. Estimates are utilized for, but not
 limited to, stock-based compensation, income taxes, valuation of acquired goodwill and intangible assets, customer refunds,
 contingent liabilities and the depreciable lives of fixed assets. Actual results could differ materially from those estimates and
 assumptions.

        Fair Value of Financial Instruments

     The carrying amounts of the Company's financial instruments, including cash and cash equivalents, accounts receivable, accounts
 payable, accrued merchant payable, accrued expenses and amounts due to related parties, approximate fair value due to their generally
 short-term maturities. The Company records money market funds and contingent consideration at fair value. See Note 12 "Fair Value
 Measurements."

        Investments in Equity Interests

      Investments in the common stock of entities in which the Company can exercise significant influence but does not own a
 majority equity interest or otherwise control are accounted for using the equity method and are included as investments in equity
 interests on the condensed consolidated balance sheet. The Company records its share of the results of these companies within
 "Equity-method investment activity, net of tax" on the condensed consolidated statement of operations. The Company reviews its
 investments for other-than-temporary impairment whenever events or changes in business circumstances indicate that the carrying
 value of the investment may not be fully recoverable. Investments identified as having an indication of impairment are subject to
 further analysis to determine if the impairment is other-than-temporary and this analysis requires estimating the fair value of the
 investment. The determination of fair value of the investment involves considering factors such as current economic and market
 conditions, the operating performance of the companies including current earnings trends and forecasted cash flows, and other
 company and industry specific information. See Note 6 "Investments in Equity Interests."

        Foreign Currency

      Balance sheet accounts of the Company's operations outside of the U.S. are translated from foreign currencies into U.S. dollars at
 the exchange rates as of the condensed consolidated balance sheet dates. Revenues and expenses are translated at average exchange
 rates during the period. Foreign currency translation gains or losses are included in accumulated other comprehensive income on the
 condensed consolidated balance sheets. Gains and losses resulting from foreign currency transactions, which are denominated in
 currencies other than the entity's functional currency, are included in other income in the condensed consolidated statements of
 operations. For the three months ended March 31, 2010 and 2011, the Company had $0 and $1.1 million of foreign currency gains,
 respectively.

        Recent Accounting Pronouncements

      In January 2010, the Financial Accounting Standards Board ("FASB") issued additional guidance that improves disclosures about
 fair value measures that were originally required. The new guidance is effective

                                                                  F-52




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                           Page 207 of 269
groupon.htm                                                                                                                                6/2/11 12:35 PM


 Table of Contents


                                                          GROUPON, INC.

           NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 for interim and annual periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances and
 settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years
 beginning after December 15, 2010, and for interim periods within those years. The adoption of this guidance did not impact the
 Company's financial position or results of operations. See Note 12 "Fair Value Measurements."

 3. ACQUISITIONS

        CityDeal Europe GmbH Acquisition

      On May 15, 2010, the Company acquired 100% of CityDeal Europe GmbH ("CityDeal"), a collective buying power business
 launched in January 2010 that provides daily deals and online marketing services substantially similar to the Company, primarily in
 European markets. The acquisition was accounted for using the purchase method of accounting and the operations of CityDeal were
 included in the Company's condensed consolidated financial statements from the date of the acquisition. In connection with the
 acquisition, the Company and the former CityDeal shareholders entered into a loan agreement. See Note 15 "Related Parties."

        Qpod.inc Acquisition

     On August 11, 2010, the Company acquired approximately 55.1% of the total issued and outstanding capital stock of Qpod.inc
 ("Qpod"), a collective buying power business launched in July 2010 that provides daily deals and online marketing services in Japan
 substantially similar to the Company. The acquisition was accounted for using the purchase method of accounting and the operations
 of Qpod were included in the condensed consolidated financial statements from the date of the acquisition.

        In conjunction with the acquisition, the Company entered into an agreement with certain founding members and other
 shareholders of Qpod, which provided the Company with call rights that allow it to buy a percentage of the remaining shares of Qpod.
 Exercising all of the call rights would entitle the Company to an aggregate of up to 90% of the outstanding capital stock of Qpod.
 Additionally, the remaining Qpod shareholders have put rights to sell their outstanding capital stock to the Company in the event of an
 initial public offering of the Company, subject to certain conditions, which if exercised in full, would give the Company up to an
 aggregate of 90% of the outstanding capital stock of Qpod.

      In January 2011, the Company entered into a Stock Purchase Agreement (the "SPA") with the other shareholders, whereby the
 Company purchased an additional percentage of the shares of Qpod from the other shareholders, increasing the Company's ownership
 in Qpod to 90%. Under the terms of the SPA, the Company acquired 21,812 shares of the total issued and outstanding capital stock of
 Qpod, on a fully-diluted basis, in exchange for $25.0 million in cash. In conjunction with the SPA, the Company has call rights that
 allow it to buy all of the remaining shares of Qpod. Exercising the call rights would give the Company 100% ownership of the
 outstanding capital stock of Qpod. Additionally, the remaining Qpod shareholders have put rights to sell their outstanding capital
 stock to the Company, including any shares of capital stock issuable upon exercise of options, which would give the Company 100%
 of the outstanding capital stock of Qpod.

        Other Acquisitions

      During the three months ended March 31, 2011, the Company acquired certain entities for an aggregate purchase price of
 $20.9 million, consisting of $5.0 million in cash and contingent consideration

                                                                  F-53




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                           Page 208 of 269
groupon.htm                                                                                                                                  6/2/11 12:35 PM


 Table of Contents


                                                                 GROUPON, INC.

           NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

 3. ACQUISITIONS (Continued)

 valued at $15.9 million. See Note 12 "Fair Value Measurements." The primary reasons for these acquisitions were to utilize these
 entities' collective buying power businesses to further grow the Company's subscribers and provide strategic entries into new and
 expanding markets in India, Malaysia, South Africa and the Middle East.

      The acquisitions were accounted for using the purchase method of accounting and the operations of these acquired companies
 were included in the condensed consolidated financial statements from the date of the acquisition. The purchase price and fair value of
 the noncontrolling interest was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated
 fair values on their corresponding acquisition date, with the remaining unallocated amount recorded as goodwill. The fair value
 assigned to identifiable intangible assets acquired was determined using an income approach.

       The financial effect of these acquisitions, individually and in the aggregate, was not material to the condensed consolidated
 financial statements. Pro forma results of operations have not been presented because the effects of these business combinations,
 individually and in the aggregate, were not material to the Company's consolidated results of operations as all of the acquisitions were
 start-up businesses. The following table summarizes the allocation of the combined purchase price of $20.9 million and the fair value
 of noncontrolling interest of $0.4 million as of the acquisition date (in thousands). Goodwill of $14.9 million represents the premium
 the Company paid over the fair value of the net tangible and intangible assets it acquired. None of the goodwill is deductible for tax
 purposes.

                            Description                                                                          Fair Value
                            Net working capital (including cash of $2.2 million)                                $       2,049
                            Property and equipment, net                                                                    31
                            Goodwill                                                                                   14,908

                            Intangible assets (1):
                              Subscriber relationships                                                                  5,390
                              Trade names                                                                                 370
                            Deferred tax liability                                                                     (1,484)
                                                                                                                $      21,264


                            (1)     Acquired intangible assets have estimated useful lives of between 1 and 5 years.


 4. GOODWILL AND OTHER INTANGIBLE ASSETS

     The changes in the carrying amount of goodwill for the three months ended March 31, 2011 were as follows (in thousands):

                                                                    North America         International        Consolidated
                            Balance as of December 31,
                              2010                                 $         19,605 $          112,433 $            132,038
                            Goodwill related to
                              acquisitions                                       —              14,908               14,908
                            Other adjustments (1)                                —               7,492                7,492
                            Balance as of March 31, 2011           $         19,605 $          134,833 $            154,438


                            (1)     Includes adjustments primarily due to changes in foreign exchange rates.


                                                                          F-54




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                             Page 209 of 269
groupon.htm                                                                                                                               6/2/11 12:35 PM


 Table of Contents


                                                          GROUPON, INC.

           NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

 4. GOODWILL AND OTHER INTANGIBLE ASSETS (Continued)

     The following summarizes the Company's other intangible assets (in thousands):

                                                               As of December 31, 2010             Weighted-
                                                                                                     Average
                                                     Gross                               Net       Remaining
                                                    Carrying      Accumulated          Carrying    Useful Life
                           Asset Category            Value        Amortization          Value       (in years)
                           Subscriber
                             relationships         $ 36,389 $             3,760 $         32,629           4.5
                           Vendor relationships       6,789               3,801            2,988           0.5
                           Trade names                5,619               3,230            2,389           0.4
                           Developed
                             technology                2,054               395             1,659           1.6
                           Other intangible
                             assets                    1,263               153             1,110           3.8
                                                   $ 52,114 $           11,339 $          40,775           3.8




                                                                As of March 31, 2011               Weighted-
                                                                                                     Average
                                                     Gross                               Net       Remaining
                                                    Carrying      Accumulated          Carrying    Useful Life
                           Asset Category            Value        Amortization          Value       (in years)
                           Subscriber
                             relationships         $ 43,931 $             6,168 $         37,763           4.3
                           Vendor relationships       7,146               5,797            1,349           0.2
                           Trade names                6,370               4,996            1,374           0.3
                           Developed
                             technology                2,114               677             1,437           1.4
                           Other intangible
                             assets                    1,318               189             1,129           3.9
                                                   $ 60,879 $           17,827 $          43,052           3.9

      Amortization expense for intangible assets was less than $0.1 million and $5.7 million for the three months ended March 31,
 2010 and 2011, respectively. As of March 31, 2011, the estimated future amortization expense of intangible assets for each of the next
 five years and thereafter is as follows (in thousands):

                           Year Ended December 31,
                            2011 (remaining 9 months)                                              $ 10,385
                            2012                                                                      9,669
                            2013                                                                      9,027
                            2014                                                                      8,995
                            2015                                                                      4,968
                            Thereafter                                                                    8
                                                                                                   $ 43,052

                                                                   F-55




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                          Page 210 of 269
groupon.htm                                                                                                                              6/2/11 12:35 PM


 Table of Contents


                                                         GROUPON, INC.

           NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

 5. PROPERTY AND EQUIPMENT, NET

     The following summarizes the Company's property and equipment, net (in thousands):

                                                                               December 31,      March 31,
                                                                                   2010            2011
                           Furniture and fixtures                             $       6,691 $        8,277
                           Leasehold improvements                                     5,233          8,025
                           Computer hardware and other                                3,396          7,650
                           External software                                          1,767          4,795
                           Office and telephone equipment                             1,408          2,112
                           Property and equipment                                    18,495         30,859
                           Less: accumulated depreciation and amortization           (2,005)        (3,931)
                           Property and equipment, net                        $      16,490 $       26,928

     Depreciation expense on property and equipment was $0.1 million and $1.9 million for the three months ended March 31, 2010
 and 2011, respectively.

 6. INVESTMENTS IN EQUITY INTERESTS

     The following summarizes the Company's investments in equity interests (in thousands):

                                                                                                Percent
                                                                                              Ownership of
                                                               December 31,    March 31,       Common
                                                                   2010          2011            Stock
                           Restaurantdiary.com                $          — $       1,266              50.0%
                           GaoPeng.com                                   —         3,220              40.0%
                             Total                            $          — $       4,486

        Equity Investment in Restaurantdiary.com Limited

      In January 2011, the Company acquired 50.0% of the ordinary shares of Restaurantdiary.com Limited ("Restaurantdiary") in
 exchange for $1.3 million. The investment in Restaurantdiary is being accounted for using the equity method, and the total
 investment is classified as part of investments in equity interests on the condensed consolidated balance sheet as of March 31, 2011.
 The Company recorded its share of the results of Restaurantdiary within "Equity-method investment activity, net of tax" in the
 condensed consolidated statement of operations for the three months ended March 31, 2011.

        Equity Investment in E-Commerce King Limited

      In January 2011, the Company acquired 40.0% of the ordinary shares of E-Commerce King Limited ("E-Commerce"), a
 company organized under the laws of the British Virgin Islands, in exchange for $4.0 million. The Company entered into the joint
 venture along with Rocket Asia GmbH & Co. KG ("Rocket Asia"), an entity controlled by the Samwers. Rocket Asia acquired
 10 percent of the ordinary shares in E-Commerce. E-Commerce subsequently established a wholly foreign owned enterprise that
 created a domestic operating company headquartered in Beijing, China ("GaoPeng.com"), which operates a group-buying site
 offering discounts for products and services to individual consumers and businesses via internet websites and social and interactive
 media. GaoPeng.com began offering daily deals in March in

                                                                  F-56




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                         Page 211 of 269
groupon.htm                                                                                                                                 6/2/11 12:35 PM


 Table of Contents


                                                           GROUPON, INC.

           NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

 6. INVESTMENTS IN EQUITY INTERESTS (Continued)

 Beijing and Shanghai with expansion to other major cities in China to follow. The investment in E-Commerce is being accounted for
 using the equity method, and the total investment is classified as part of investments in equity interests on the condensed consolidated
 balance sheet as of March 31, 2011. The Company recorded its share of the results of E-Commerce within "Equity-method
 investment activity, net of tax" in the condensed consolidated statement of operations for the three months ended March 31, 2011.

 7. ACCRUED EXPENSES

     The following summarizes the Company's accrued expenses (in thousands):

                                                                                December 31,     March 31,
                                                                                    2010           2011
                            Marketing                                           $     48,244 $      56,707
                            Refunds reserve                                           13,938        26,003
                            Payroll and benefits                                      12,187        20,150
                            Customer rewards                                           8,333        12,391
                            Rent                                                       3,169         1,304
                            Credit card fees                                           2,500         3,349
                            Professional fees                                          2,341           941
                            Other                                                      7,611         9,336
                                                                                $     98,323 $ 130,181

 8. COMMITMENTS AND CONTINGENCIES

        Operating Leases

      The Company has entered into various non-cancelable operating lease agreements, primarily covering certain of its offices
 throughout the world, with original lease periods expiring between 2011 and 2017. Rent expense under these operating leases was
 $0.1 million and $3.7 million for the three months ended March 31, 2010 and 2011, respectively.

       Certain of these arrangements have renewal or expansion options and adjustments for market provisions, such as free or
 escalating base monthly rental payments. The Company recognizes rent expense under such arrangements on a straight-line basis over
 the initial term of the lease. The difference between the straight-line expense and the cash paid for rent has been recorded as deferred
 rent.

      The Company is responsible for paying its proportionate share of the actual operating expenses and real estate taxes under certain
 of these lease agreements. These operating expenses are not included in the

                                                                  F-57




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                            Page 212 of 269
groupon.htm                                                                                                                                    6/2/11 12:35 PM


 Table of Contents


                                                            GROUPON, INC.

            NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

 8. COMMITMENTS AND CONTINGENCIES (Continued)



 table below. As of March 31, 2011, the estimated future payments under operating leases (including rent escalation clauses) for each
 of the next five years and thereafter is as follows (in thousands):

                            Year Ended December 31,
                               2011 (remaining 9 months)                                           $ 12,667
                               2012                                                                  11,438
                               2013                                                                   5,630
                               2014                                                                   3,739
                               2015                                                                   3,271
                             Thereafter                                                               3,630
                                                                                                   $ 40,375

        Purchase Obligations

    The Company entered into a non-cancelable service contract, primarily covering marketing services, which expires in 2012. At
 March 31, 2011, future payments under this contractual obligation were as follows (in thousands):

                            Year Ended December 31,
                               2011 (remaining 9 months)                                              $ 680
                               2012                                                                     227
                               2013                                                                      —
                               2014                                                                      —
                               2015                                                                      —
                             Thereafter                                                                  —
                                                                                                      $ 907

        Legal Matters

      The Company currently is involved in several disputes or regulatory inquiries, including suits by its customers (individually or as
 class actions) alleging, among other things, violation of the Credit Card Accountability, Responsibility and Disclosure Act and state
 laws governing gift cards, stored value cards and coupons, violations of unclaimed and abandoned property laws and violations of
 privacy laws. The number of these disputes and inquiries is increasing. Any claims or regulatory actions against the Company,
 whether meritorious or not, could be time consuming, result in costly litigation, damage awards, injunctive relief or increased costs of
 doing business through adverse judgment or settlement, require the Company to change its business practices in expensive ways,
 require significant amounts of management time, result in the diversion of significant operational resources or otherwise harm the
 Company's business.

       In addition, third parties from time to time have claimed, and others may claim in the future, that the Company has infringed their
 intellectual property rights. The Company is subject to intellectual property disputes, and expects that it will increasingly be subject to
 intellectual property infringement claims as its services expand in scope and complexity. The Company has in the past been forced to
 litigate such claims. The Company may also become more vulnerable to third-party claims as laws such as the Digital Millennium
 Copyright Act are interpreted by the courts, and as the Company becomes subject to laws in jurisdictions where the underlying laws
 with respect to the potential liability of online intermediaries are

                                                                   F-58




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                               Page 213 of 269
groupon.htm                                                                                                                                   6/2/11 12:35 PM


 Table of Contents


                                                            GROUPON, INC.

           NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

 8. COMMITMENTS AND CONTINGENCIES (Continued)




 either unclear or less favorable. Management believes that additional lawsuits alleging that it has violated patent, copyright or
 trademark laws will be filed against the Company. Intellectual property claims, whether meritorious or not, are time consuming and
 costly to resolve, could require expensive changes in the Company's methods of doing business, or could require it to enter into costly
 royalty or licensing agreements.

       From time to time, the Company may become party to additional litigation incident to the ordinary course of business. The
 Company assesses the likelihood of any adverse judgments or outcomes with respect to these matters and determines loss contingency
 assessments on a gross basis after assessing the probability of incurrence of a loss and whether a loss is reasonably estimable. In
 addition, the Company considers other relevant factors that could impact its ability to reasonably estimate a loss. A determination of
 the amount of reserves required, if any, for these contingencies is made after analyzing each matter. The Company's reserves may
 change in the future due to new developments or changes in strategy in handling these matters. Although the results of litigation and
 claims cannot be predicted with certainty, the Company currently believes that the final outcome of these matters will not have a
 material adverse effect on its business, consolidated financial position, results of operations, or cash flows. Regardless of the outcome,
 litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources
 and other factors.

 9. STOCKHOLDERS' EQUITY

 Common Stock

      The Board has authorized two classes of common stock, voting and non-voting. At March 31, 2011, there were 500,000,000 and
 100,000,000 shares authorized and there were 144,681,311 and 5,997,640 shares outstanding of voting and non-voting common stock,
 respectively. Voting and non-voting common stock are referred to as common stock throughout the notes to these financial
 statements, unless otherwise noted.

       In May 2010, the Board approved a resolution to effect a three-for-one stock split of the Company's common stock with no
 corresponding change to the par value. The stock split became effective in August 2010. The Board also approved a two-for-one
 stock split of the Company's common stock in December 2010 with no corresponding change to the par value, which became effective
 in January 2011. All common share numbers and per share amounts for all periods presented have been adjusted retroactively to
 reflect both the three-for-one and the two-for-one stock split.

      In February 2011, the Board authorized the issuance and sale, by way of a private placement, of 1,090,830 shares of non-voting
 common stock for $17.2 million in gross proceeds, and used $17.0 million of the proceeds from the sale to redeem shares of its
 outstanding common stock held by certain shareholders and the remainder for working capital and general corporate purposes. See
 Note 15 "Related Parties."

      Upon any liquidation, dissolution or winding up of the Company (a "liquidation event"), the remaining assets of the Company
 will be distributed ratably among all preferred and common stockholders only after the payment of the full Series G Preferred
 liquidation preference of $950.0 million has been satisfied.

      The Company issues stock-based awards to its employees in the form of stock options, restricted stock units and restricted stock,
 all of which have the potential to increase the outstanding shares of common stock in the future. See Note 10 "Stock-Based
 Compensation."

                                                                   F-59




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                              Page 214 of 269
groupon.htm                                                                                                                                6/2/11 12:35 PM


 Table of Contents


                                                          GROUPON, INC.

           NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

 9. STOCKHOLDERS' EQUITY (Continued)

 Convertible Preferred Stock

      The Company has authorized 199,998 shares of Series B Preferred, 6,560,174 shares of Series D Preferred, 4,406,160 shares of
 Series E Preferred, 4,202,658 shares of Series F Preferred and 30,075,690 shares of Series G Preferred. The Series B Preferred,
 Series D Preferred, Series E Preferred, Series F Preferred and Series G Preferred, collectively, are referenced below as the "Series
 Preferred." The rights, preferences, privileges, restrictions and other matters relating to the Series Preferred are summarized below.

        Series B Preferred

      There were 199,998 shares of Series B Preferred outstanding at March 31, 2011, and less than $0.1 million of accrued preferred
 dividends due to Series B Preferred holders. The Series B Preferred holders are entitled to receive, upon a liquidation event, the
 amount that would have been received if all shares of Series Preferred had been converted into voting common stock immediately
 prior to such liquidation event, only after the payment of the full Series G Preferred liquidation preference has been satisfied. As of
 March 31, 2011, 1,199,988 shares of voting common stock would have been required to be issued assuming conversion of all of the
 issued and outstanding shares of Series B Preferred.

        Series D Preferred

      There were 5,956,420 shares of Series D Preferred outstanding at March 31, 2011, and $0.8 million of accrued preferred
 dividends due to Series D Preferred holders. The Series D Preferred holders are entitled to receive, upon a liquidation event, the
 amount that would have been received if all shares of Series Preferred had been converted into voting common stock immediately
 prior to such liquidation event, only after the payment of the full Series G Preferred liquidation preference has been satisfied. As of
 March 31, 2011, 35,738,520 shares of voting common stock would have been required to be issued assuming conversion of all of the
 issued and outstanding shares of Series D Preferred.

        Series E Preferred

      There were 4,060,183 shares of Series E Preferred outstanding at March 31, 2011. The Series E Preferred holders are entitled to
 receive, upon a liquidation event, the amount that would have been received if all shares of Series Preferred had been converted into
 voting common stock immediately prior to such liquidation event, only after the payment of the full Series G Preferred liquidation
 preference has been satisfied. As of March 31, 2011, 24,361,098 shares of voting common stock would have been required to be
 issued assuming conversion of all of the issued and outstanding shares of Series E Preferred.

                                                                  F-60




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                           Page 215 of 269
groupon.htm                                                                                                                                    6/2/11 12:35 PM


 Table of Contents


                                                            GROUPON, INC.

            NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

 9. STOCKHOLDERS' EQUITY (Continued)

        Series F Preferred

      There were 4,202,658 shares of Series F Preferred outstanding at March 31, 2011. The Series F Preferred holders are entitled to
 receive, upon a liquidation event, the amount that would have been received if all shares of Series Preferred had been converted into
 voting common stock immediately prior to such liquidation event, only after the payment of the full Series G Preferred liquidation
 preference has been satisfied. As of March 31, 2011, 25,215,948 shares of voting common stock would have been required to be
 issued assuming conversion of all of the issued and outstanding shares of Series F Preferred.

        Series G Preferred

      In January 2011, the Company authorized the sale and additional issuance of 15,827,796 shares of Series G Preferred for
 $496.0 million in gross proceeds (or $492.5 million, net of issuance costs), and used $371.5 million of the proceeds from the sale to
 redeem shares of its outstanding common stock and preferred stock held by certain shareholders and the remainder for working capital
 and general corporate purposes. Included in the additional stock issuance was 126,622 shares of Series G Preferred (or the equivalent
 of $4.0 million) the Company transferred to its underwriter in exchange for financial advisory services provided. There were
 30,075,690 shares authorized and 30,072,814 shares outstanding at March 31, 2011.

       Holders of Series G Preferred are entitled to the number of votes equal to the number of shares of voting common stock into
 which their shares of Series G Preferred could be converted. In addition, the Series G Preferred holders are entitled, before any
 distribution or payment is made upon any Series B Preferred, Series D Preferred, Series E Preferred, Series F Preferred or common
 stock, to be paid an amount per share equal to 100% of the Series G Preferred original price, plus all declared but unpaid dividends on
 the Series G Preferred. If, upon the liquidating event, the assets of the Company are insufficient to fully pay the amounts owed to
 Series G Preferred holders, all distributions would be made ratably in proportion to the full amounts to which holders would have
 otherwise been entitled. In the event that the Company is a party to an acquisition or asset transfer, each holder of Series G Preferred
 is entitled to receive the amount of cash, securities, or other property to which such holder would be entitled to receive in a liquidation
 event.

       Each share of Series G Preferred shall automatically be converted into shares of voting common stock upon the earliest of the
 following events to occur: (i) holders of at least 50% of the outstanding shares of Series G Preferred consent to a conversion, or
 (ii) immediately upon the closing of an initial public offering. The number of shares of voting common stock to which a Series G
 Preferred stockholder is entitled upon conversion is calculated by multiplying the applicable conversion rate then in effect (currently
 2.0) by the number of Series G Preferred shares to be converted. The conversion rate for the Series G Preferred shares is subject to
 change in accordance with anti-dilution provisions contained in the agreement with those holders. More specifically, the conversion
 price is subject to adjustment to prevent dilution on a weighted-average basis in the event that the Company issues additional shares
 of common stock or securities convertible or exercisable for common stock at a purchase price less than the then effective conversion
 price. As of March 31, 2011, 60,145,628 shares of voting common stock would have been required to be issued assuming conversion
 of all of the issued and outstanding shares of Series G Preferred.

                                                                   F-61




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                               Page 216 of 269
groupon.htm                                                                                                                                 6/2/11 12:35 PM


 Table of Contents


                                                           GROUPON, INC.

           NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

 9. STOCKHOLDERS' EQUITY (Continued)

 Stock Repurchase Activity

      In December 2010, the Board authorized the Company to repurchase shares of its capital stock held by certain holders, using a
 portion of the proceeds from the sale of Series G Preferred. In conjunction with the sale and additional issuance of Series G Preferred
 shares in January 2011, the Company repurchased 21,307,276 shares of common stock for $336.5 million, which is reflected as
 "Treasury stock," and 369,347 shares of preferred stock for $35.0 million, which was recorded as a reduction to "Additional paid-in
 capital," on the condensed consolidated balance sheet at March 31, 2011. The Board also authorized the Company to repurchase
 additional shares using a portion of the proceeds from the sale of non-voting common stock in February 2011. As a result, the
 Company repurchased 1,076,371 shares of common stock for $17.0 million, which is reflected as "Treasury stock" on the condensed
 consolidated balance sheet at March 31, 2011.

 10. STOCK-BASED COMPENSATION

        Groupon, Inc. Stock Plans

      In January 2008, the Company adopted the ThePoint.com 2008 Stock Option Plan, as amended (the "2008 Plan"), under which
 options for up to 32,309,250 shares of common stock were authorized to be issued to employees, consultants, and directors of
 ThePoint.com, which is now the Company. In April 2010, the Company established the Groupon, Inc. 2010 Stock Plan, as amended
 (the "2010 Plan"), under which options and restricted stock units ("RSUs") for up to 7,000,000 shares of non-voting common stock
 were authorized for future issuance to employees, consultants and directors of the Company. The 2008 Plan and the 2010 Plan (the
 "Plans") are administered by the Board, who determine the number of awards to be issued, the corresponding vesting schedule and the
 exercise price for options. As of March 31, 2011, 1,288,376 shares were available for future issuance under the Plans. Prior to January
 2008, the Company issued stock options and RSUs that are governed by employment agreements, some of which are still unvested
 and outstanding.

        Stock Options

      The exercise price of stock options granted is equal to the fair market value of the underlying stock on the date of grant. The
 contractual term for stock options expires ten years from the grant date. Stock options generally vest over a three or four-year period,
 with 25% of the awards vesting after one year and the remainder of the awards vesting on a monthly basis thereafter. The fair value of
 stock options on the date of grant is amortized on a straight-line basis over the requisite service period.

                                                                  F-62




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                            Page 217 of 269
groupon.htm                                                                                                                                                               6/2/11 12:35 PM


 Table of Contents


                                                                    GROUPON, INC.

           NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

 10. STOCK-BASED COMPENSATION (Continued)

     The table below summarizes the stock option activity during the three months ended March 31, 2011:

                                                                                                          Weighted-
                                                                                                           Average
                                                                                    Weighted-             Remaining                Aggregate
                                                                                      Average             Contractual            Intrinsic Value
                                                                  Options          Exercise Price       Term (in years)        (in thousands) (a)
              Outstanding at December 31, 2010                  13,732,852       $           2.00                     9.00 $            189,406
               Granted                                              60,000       $          15.80                     9.85
               Exercised                                        (1,229,944)      $           0.82                     8.30
               Forfeited                                          (257,900)      $           0.24                     8.28
              Outstanding at March 31, 2011                     12,305,008       $           2.23                     8.82 $            259,796
              Exercisable at March 31, 2011                       3,461,597 $                 1.60                    8.65 $              75,106


              (a)     The aggregate intrinsic value of options outstanding and exercisable represents the total pretax intrinsic value (the difference between the fair
                      value of the Company's stock on the last day of each fiscal year or quarter and the exercise price, multiplied by the number of options where
                      the exercise price exceeds the fair value) that would have been received by the option holders had all option holders exercised their options as
                      of December 31, 2010 and March 31, 2011, respectively.


     The total fair value of options that vested during the three months ended March 31, 2010 and 2011 was less than $0.1 million and
 $2.8 million, respectively.

        Restricted Stock Units

      The restricted stock units granted under the Plans vest over a four-year period, with 25% of the awards vesting after one year and
 the remaining awards vesting on a monthly basis thereafter. The fair value of restricted stock units on the date of grant is amortized on
 a straight-line basis over the requisite service period.

     The table below summarizes activity regarding unvested restricted stock units under the Plans during the three months ended
 March 31, 2011:

                                                                                                                   Weighted-
                                                                                                                    Average
                                                                                                                   Grant Date
                                                                                                  Restricted       Fair Value
                                                                                                 Stock Units       (per share)
                             Unvested at December 31, 2010                                          1,788,300     $       14.32
                              Granted                                                                 907,224     $       17.98
                              Vested                                                                  (45,668)    $       13.48
                              Forfeited                                                                    —      $          —
                             Unvested at March 31, 2011                                             2,649,856     $       15.59

        Performance Stock Units

     In May 2010, the Company issued performance stock units ("PSUs") under the terms of the agreement to acquire Mobly, Inc., a
 mobile technology company. The Company agreed to issue up to 720,000 PSUs to the previous Mobly shareholders contingent on
 meeting certain performance-based

                                                                             F-63




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                                                          Page 218 of 269
groupon.htm                                                                                                                                6/2/11 12:35 PM


 Table of Contents


                                                          GROUPON, INC.

           NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

 10. STOCK-BASED COMPENSATION (Continued)

 operational objectives over the next three years. Upon being granted, the PSUs immediately vest as Company stock. During the three
 months ended March 31, 2011, there was no activity related to the PSUs.

     The Company recognized stock compensation expense of $0.1 million and $7.6 million during the three months ended March 31,
 2010 and 2011, respectively, related to awards issued under the Plans and employment agreements. The corresponding tax benefit
 provided by stock compensation was less than $0.1 million and $0 for the three months ended March 31, 2010 and 2011, respectively.

      As of March 31, 2011, a total of $53.0 million of unrecognized compensation costs related to unvested stock options and
 unvested restricted stock units issued are expected to be recognized over the remaining weighted-average period of three years.

        Acquisition-Related Stock Awards

     During 2010, the Company made several acquisitions of subsidiaries that resulted in the issuance of additional equity-based
 awards to employees of the acquired companies.

        CityDeal Acquisition

      In May 2010, the Company acquired CityDeal, which resulted in the issuance of shares of the Company's restricted stock to a
 trust for current CityDeal employees. The restricted stock vests quarterly generally over a period of three years and is amortized on a
 straight-line basis over the requisite service period.

      The table below summarizes activity regarding unvested restricted stock issued as part of the CityDeal acquisition during the
 three months ended March 31, 2011:

                                                                                               Weighted-
                                                                                                Average
                                                                                               Grant Date
                                                                                  Restricted   Fair Value
                                                                                    Stock      (per share)
                           Unvested at December 31, 2010                          2,219,605    $     8.52
                            Granted                                                 108,788    $    15.80
                            Vested                                                 (219,641)   $     8.82
                            Forfeitures                                            (206,144)   $     8.52
                           Unvested at March 31, 2011                             1,902,608    $     8.90

     The fair value of restricted stock that vested during the three months ended March 31, 2011 was $1.9 million.

       The Company recognized stock compensation expense of $1.5 million during the three months ended March 31, 2011 related to
 restricted stock granted as part of the CityDeal acquisition, none of which provided the Company with a tax benefit. As of March 31,
 2011, a total of $10.1 million of unrecognized compensation costs related to unvested restricted stock are expected to be recognized
 over the remaining weighted-average period of two years.

                                                                  F-64




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                           Page 219 of 269
groupon.htm                                                                                                                                 6/2/11 12:35 PM


 Table of Contents


                                                           GROUPON, INC.

           NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

 10. STOCK-BASED COMPENSATION (Continued)

        Subsidiary Awards

      The Company made several other acquisitions during the year ended December 31, 2010 in which the selling shareholders of the
 acquired companies were granted RSUs and stock options ("subsidiary awards") in the Company's subsidiaries. These subsidiary
 awards were issued in conjunction with the acquisitions as a way to retain and incentivize key employees. They generally vest on a
 quarterly basis for a period of three or four years, and dilute the Company's ownership percentage of the corresponding subsidiaries as
 they vest over time. The fair market value of the subsidiary shares granted was determined on a contemporaneous basis. A significant
 portion of the subsidiary awards are classified as liabilities on the condensed consolidated balance sheet due to the existence of put
 rights that allow the selling shareholders to put their stock back to the Company. The liabilities for the subsidiary shares are
 remeasured on a quarterly basis, with the offset to stock-based compensation expense within selling, general and administrative
 expenses on the condensed consolidated statement of operations. Additionally, the Company has call rights on most of the subsidiary
 awards, which allow it to purchase the remaining outstanding shares based on contractual agreements.

      The Company recognized stock compensation expense of $9.8 million during the three months ended March 31, 2011 related to
 subsidiary awards, none of which provided the Company with a tax benefit. As of March 31, 2011, a total of $58.2 million of
 unrecognized compensation costs related to unvested subsidiary awards are expected to be recognized over the remaining weighted-
 average period of two years. The amount of unrecognized compensation costs is management's best estimate based on the current fair
 market values of each of the subsidiaries and could change significantly based on future valuations.

        Common Stock Valuations

      The Company determined the fair value per share of the common stock underlying the stock-based awards through the
 contemporaneous application of a discounted future earnings model initially and then a discounted cash flow methodology going
 forward, which was approved by the Board. Stock-based awards were granted to employees in the form of stock options, restricted
 stock units and restricted stock. All such awards granted were exercisable at a price per share equal to the per share fair value of the
 Company's common stock on the date of grant. Determining the fair value of the Company's common stock required making complex
 and subjective judgments. The assumptions used in the valuation models were based on future expectations combined with
 management estimates.

      The discounted future earnings method calculates the present value of future economic benefits using a discount rate based on
 the nature of the business, the level of overall risk and the expected stability of the estimated future economic benefits. The future
 economic benefits are estimated over a period of years sufficient to reach stability of the business, and management expects the
 Company to grow substantially for several years before revenue stabilizes. The discounted cash flow method valued the business by
 discounting future available cash flows to present value at an approximate rate of return. The cash flows were determined using
 forecasts of revenue, net income and debt-free future cash flow. The discount rate was derived using a Capital Asset Pricing Model
 for companies in the "expansion" stage of development. The Company also applied a lack of marketability discount to its enterprise
 value, which took into account that investments in private companies are less liquid than similar investments in public companies.
 There is inherent uncertainty in all of these estimates.

                                                                  F-65




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                            Page 220 of 269
groupon.htm                                                                                                                                6/2/11 12:35 PM


 Table of Contents


                                                          GROUPON, INC.

           NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

 10. STOCK-BASED COMPENSATION (Continued)

      Summarized below are the significant factors the Board considered in determining the fair value of the common stock underlying
 the Company's stock-based awards granted to its employees during the three months ended March 31, 2011:

 First Quarter 2011

      In the first quarter of 2011, the following significant events occurred: (1) the Company raised $492.5 million in net proceeds
 from the issuance of Series G Preferred in January 2011; (2) the Company expanded its presence into new and expanding markets in
 India, Malaysia, South Africa and the Middle East through a series of acquisitions; and (3) the number of subscribers increased to
 approximately 83.1 million as of March 31, 2011 and the Company launched its services in 21 additional markets across North
 America.

 11. INCOME (LOSS) PER SHARE

        Basic and diluted net income (loss) per common share is presented in conformity with the two-class method required for
 participating securities. The two-class method includes an earnings allocation formula that determines earnings for each class of
 common stock according to dividends declared and undistributed earnings for the period.

     Holders of Series B, D, and E convertible preferred stock were each entitled to receive dividends at the annual rate of 6% of their
 respective original issue price per annum. These dividend rights were subsequently rescinded by the Board in December 2010. In the
 event a dividend is paid on common stock, the holders of Series B, D, E, F, and G convertible preferred stock are entitled to a
 proportionate share of any such dividend as if they were holders of common stock (on an as-if converted basis). The Company
 considers its preferred stock to be participating securities and, in accordance with the two-class method, earnings are allocated
 between common and preferred stock.

                                                                  F-66




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                           Page 221 of 269
groupon.htm                                                                                                                              6/2/11 12:35 PM


 Table of Contents


                                                          GROUPON, INC.

           NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

 11. INCOME (LOSS) PER SHARE (Continued)

     The following table sets forth the computation of basic and diluted income (loss) per share:

                                                                              Three Months ended March 31
                                                                                2010               2011(a)
                           Net income (loss) as reported              $                8,551        (113,891)
                            Less: Distributed earnings available to
                               participating securities                                 (523)                —
                            Less: Undistributed earnings available to
                               participating securities                             (2,241)                  —
                            Redemption of preferred stock in excess
                               of carrying value                                         —           (34,327)
                            Adjustment of redeemable noncontrolling
                               interests to redemption value                             —             (9,485)
                           Less: Net loss attributable to
                             noncontrolling interest                                                  11,223
                            Numerator for basic earnings per share—
                               Undistributed and distributed income
                               (loss) available to common
                               shareholders                                            5,787        (146,480)
                            Add: Undistributed income allocated to
                               participating securities                                2,241                 —
                            Less: Undistributed income reallocated to
                               participating securities                             (1,719)                  —
                            Numerator for diluted earnings per share
                               —Undistributed and distributed
                               earnings available to common
                               shareholders                           $                6,309        (146,480)
                            Denominator for basic earnings per share
                               —weighted average shares                       172,966,829        153,924,706
                           Effect of dilutive securities                       72,995,741                  0
                             Denominator for diluted earnings per
                               share— weighted average shares
                               adjusted for dilutive securities               245,962,571        153,924,706
                           Earnings per share two-class method
                            Basic                                         $             0.03 $           0.95
                            Diluted                                       $             0.03 $           0.95


                           (a)     Stock options, restricted stock units, performance stock units and convertible preferred shares are
                                   not included in the calculation of diluted net loss per share for the three months ended March 31
                                   2011 because the Company had a net loss. Accordingly, the inclusion of these equity awards would
                                   have had an antidilutive effect on the calculation of diluted loss per share.

                                                                 F-67




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                         Page 222 of 269
groupon.htm                                                                                                                                 6/2/11 12:35 PM


 Table of Contents


                                                           GROUPON, INC.

           NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

 11. INCOME (LOSS) PER SHARE (Continued)

     The following outstanding equity awards are not included in the diluted net loss per share calculation above because they would
 have had an antidilutive effect:

                                                                               Three Months Ended March 31,
                            Antidilutive equity awards                            2010            2011
                            Stock options                                       5,625,000       12,305,008
                            Restricted stock units                                     —         2,649,856
                            Convertible preferred shares                               —       146,661,182
                            Performance stock units                                    —           600,000
                              Total                                             5,625,000      162,216,046

 12. FAIR VALUE MEASUREMENTS

       Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an
 orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that
 should be determined based on assumptions that market participants would use in pricing an asset or a liability.

      To increase the comparability of fair value measures, the following hierarchy prioritizes the inputs to valuation methodologies
 used to measure fair value:

        Level 1—Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

        Level 2—Include other inputs that are directly or indirectly observable in the marketplace.

        Level 3—Unobservable inputs that are supported by little or no market activities. Valuations derived from valuation
        techniques in which one or more significant inputs or significant value drivers are unobservable, such as pricing models,
        discounted cash flow models and similar techniques not based on market, exchange, dealer or broker-traded transactions.

      In determining fair value, the Company uses various valuation approaches within the fair value measurement framework. The
 valuation methodologies used for the Company's instruments measured at fair value and their classification in the valuation hierarchy
 are summarized below:

      Cash equivalents—Cash equivalents primarily consisted of highly-rated commercial paper and money market funds. The
 Company classified cash equivalents as Level 1, due to their short-term maturity, and measured the fair value based on quoted prices
 in active markets for identical assets.

      Contingent consideration—During the three months ended March 31, 2011, the Company had obligations to transfer
 $16.6 million in contingent payment considerations to the former owners of certain acquirees as part of the exchange for control of
 these acquirees, if specified future operational objectives and financial results are met over the next three years. The Company
 determined the acquisition-date fair value of these contingent liabilities, based on the likelihood of contingent earn-out payments, as
 part of the consideration transferred, and subsequently remeasured the fair value using an income approach that is primarily
 determined based on the present value of future cash flows using internal models. The Company classified this financial liability as
 Level 3, due to the lack of relevant observable inputs and market activity.

                                                                  F-68




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                            Page 223 of 269
groupon.htm                                                                                                                              6/2/11 12:35 PM


 Table of Contents


                                                                GROUPON, INC.

           NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

 12. FAIR VALUE MEASUREMENTS (Continued)

      The following table summarizes the Company's assets and liabilities that are measured at fair value on a recurring basis (in
 thousands):

                                                                                                   Fair Value Measurement
                                                                                                   at Reporting Date Using
                                                                                       Quoted Prices
                                                                                         in Active        Significant
                                                                                        Markets for          Other         Significant
                                                                      As of              Identical       Observable      Unobservable
                                                                   December 31,            Assets           Inputs           Inputs
              Description                                              2010              (Level 1)         (Level 2)        (Level 3)
              Assets:
               Cash equivalents                                  $        23,028 $            23,028 $            — $               —



                                                                                                   Fair Value Measurement
                                                                                                   at Reporting Date Using
                                                                                       Quoted Prices
                                                                                         in Active        Significant
                                                                                        Markets for          Other         Significant
                                                                       As of             Identical       Observable      Unobservable
                                                                      March 31,            Assets           Inputs           Inputs
              Description                                               2010             (Level 1)         (Level 2)        (Level 3)
              Assets:
               Cash equivalents                                      $    23,061 $            23,061 $            — $               —
              Liabilities:
               Contingent consideration                              $    16,568 $                  — $           — $          16,568

    The following table provides a roll-forward of the fair value of the contingent consideration categorized as Level 3 for the three
 months ended March 31, 2011:

                                                                                                            Fair Value
                            Balance as of December 31, 2010                                                $         —
                            Issuance of contingent consideration in connection with
                               acquisitions                                                                     15,920
                            Other adjustments (1)                                                                  648
                            Balance as of March 31, 2011                                                   $    16,568


                            (1)    Includes adjustments due to changes in foreign exchange rates.


     There were no changes to the Company's valuation techniques used to measure asset and liability fair values on a recurring basis
 during the three months ended March 31, 2011.

      The Company's other financial instruments consist primarily of accounts receivable, accounts payable, accrued merchant payable,
 accrued expenses and amounts due to related parties. The carrying value of these assets and liabilities approximate their respective
 fair values as of March 31, 2011, due to their short maturity. At March 31, 2011 there were no material fair value adjustments
 required for non-financial assets and liabilities.

                                                                         F-69




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                         Page 224 of 269
groupon.htm                                                                                                                                6/2/11 12:35 PM


 Table of Contents


                                                          GROUPON, INC.

           NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

 13. INCOME TAXES

      The Company is subject to taxation in the United States federal, various state and foreign jurisdictions. Significant judgment is
 required in determining the worldwide provision for income taxes and recording the related income tax assets and liabilities. At
 March 31, 2011, the Company did not have any material unrecognized tax benefits recorded on its balance sheets.

       The Company's effective tax rate could fluctuate significantly on a quarterly basis and could be adversely affected to the extent
 earnings are lower than anticipated in countries where the Company has lower statutory rates and higher than anticipated in countries
 where the Company has higher statutory rates. The effective tax rate could also fluctuate due to changes in the valuation of deferred
 tax assets or liabilities, or by changes in tax laws, regulations, accounting principles, or interpretations thereof. In addition, the
 Company is subject to the continuous examination of its income tax returns by the Internal Revenue Service and other tax authorities.
 The Company regularly assesses the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of
 its provision for income taxes.

 14. SEGMENT INFORMATION

      The Company has organized its operations into two principal segments: North America, which represents the United States and
 Canada; and International, which represents the rest of the Company's global operations. Segment operating results reflect earnings
 before stock-based compensation, interest and other income, net, equity-method investment activity, net, and provision (benefit) for
 income taxes. Segment information reported below represents the operating segments of the Company for which separate information
 is available and for which segment results are evaluated regularly by the Company's chief operating decision-maker (i.e., our chief
 executive officer) in assessing performance and allocating resources.

       Revenues for each segment are based on the geographic market that sells the Groupons. There are no internal revenue
 transactions or allocations of costs between reporting segments. Revenue and profit or

                                                                  F-70




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                           Page 225 of 269
groupon.htm                                                                                                                                                     6/2/11 12:35 PM


 Table of Contents


                                                               GROUPON, INC.

           NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

 14. SEGMENT INFORMATION (Continued)



 loss information by reportable segment reconciled to consolidated net income (loss) was as follows (in thousands):

                                                                                                Three Months Ended
                                                                                                     March 31,
                                                                                                2010          2011
                           North America
                            Revenue (1)                                                     $ 44,236 $         297,897
                            Segment operating expenses(2)                                     35,549           319,675
                             Segment operating income (loss)                                     8,687         (21,778)
                           International
                             Revenue                                                        $       — $        346,831
                             Segment operating expenses(2)                                          —          423,337
                            Segment operating (loss)                                                —          (76,506)
                           Consolidated
                            Revenue                                                         $ 44,236 $         644,728
                            Segment operating expenses(2)                                     35,549           743,012
                             Segment operating income (loss)                                     8,687         (98,284)
                             Stock-based compensation                                             (116)        (18,864)
                             Interest and other income, net                                          3           1,060
                             Equity-method investment activity, net                                 —             (882)
                             Income (loss) before income taxes                                   8,574        (116,970)
                             Provision (benefit) for income taxes                                   23          (3,079)
                             Net income (loss)                                              $    8,551 $ (113,891)


                           (1)     North America contains revenue from the United States of $44.2 million and $274.7 million for the three months ended
                                   March 31, 2010 and 2011, respectively.

                           (2)     Represents operating expenses, excluding stock-based compensation, acquisition-related expense, interest and other income,
                                   net, and equity-method investment activity, net, which are not allocated to segments.


     No single customer or individual foreign country accounted for more than 10% of net revenue during the three months ended
 March 31, 2010 and 2011.

     Total assets by reportable segment reconciled to consolidated assets were as follows (in thousands):

                                                                                         December 31,        March 31,
                                                                                             2010              2011
                           North America                                                $       104,606 $ 203,518
                           International                                                        276,964   337,892
                             Consolidated total                                         $       381,570 $ 541,410

                                                                        F-71




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                                                Page 226 of 269
groupon.htm                                                                                                                               6/2/11 12:35 PM


 Table of Contents


                                                          GROUPON, INC.

           NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

 15. RELATED PARTIES

        Non-voting Common Stock Issuance

     In February 2011, the Board authorized the issuance and sale, by way of a private placement, of 1,090,830 shares of non-voting
 common stock for $17.2 million in gross proceeds. Included in the stock issuance of non-voting common stock were a total of
 949,668 shares sold to Howard Schultz and to several partnerships of Maveron LLC, a venture capital firm co-founded by
 Mr. Schultz, for an aggregate purchase price of $15.0 million. Mr. Schultz is a member of the Company's Board of Directors.

        CityDeal Loan Agreement

      In connection with the CityDeal acquisition, the Company and the former CityDeal shareholders (including Oliver Samwer, Marc
 Samwer and Alexander Samwer) entered into a loan agreement, as amended, to provide CityDeal with an aggregate $25.0 million
 term loan facility (the "facility"). Both the Company and the former CityDeal shareholders each were obligated to make available
 $12.5 million under the terms of the facility, both of which were fully disbursed to CityDeal during the year ended December 31,
 2010. The outstanding balance accrued interest at a rate of 5% per year and was payable upon termination of the facility, which was
 the earlier of any prepayments or December 2012. The outstanding balance payable to the former CityDeal shareholders at
 December 31, 2010 of $13.0 million, along with corresponding accrued interest of $0.1 million, is included in "Due to related parties"
 on the consolidated balance sheet. The amount due to the former CityDeal shareholders exceeds the amount of the facility in US
 dollars as a result of changes in foreign currency exchange rates throughout the year ended December 31, 2010. In March 2011,
 CityDeal repaid all amounts outstanding to the former CityDeal shareholders, including all accrued interest. There were no
 outstanding commitments remaining on the loan agreement with the former CityDeal shareholders at March 31, 2011 and CityDeal
 may not reborrow any part of the facility which was repaid.

        Internet Technology Services

      The Company has entered into agreements with Rocket Internet GmbH ("Rocket") and various other companies in which Oliver
 Samwer, Marc Samwer and Alexander Samwer (the "Samwers") have direct or indirect ownership interests, to provide information
 technology, marketing and other services to the Company. The Company paid $0.9 million to Rocket and a total of $0.1 million to
 these other companies for services rendered for the three months ended March 31, 2011, which are classified within selling, general
 and administrative expenses in the condensed consolidated statements of operations. As of March 31, 2011, less than $0.1 million was
 due to Rocket, which was classified in "Due to related parties" on the condensed consolidated balance sheet.

        Merchant Contracts

      The Company entered into several agreements with merchant companies in which the Samwers have direct or indirect ownership
 interests, and, in some cases, are also directors of these companies, pursuant to which the Company conducts its business by offering
 goods and services at a discount with these merchants. The Company paid in total $1.2 million to these companies under the
 merchant agreements for the three months ended March 31, 2011, which was recorded in cost of revenue in the condensed
 consolidated statements of operations. The Company had $0.8 million due to these companies as of March 31, 2011, which was
 classified in "Due to related parties" on the condensed consolidated balance sheet.

                                                                 F-72




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                          Page 227 of 269
groupon.htm                                                                                                                                6/2/11 12:35 PM


 Table of Contents


                                                          GROUPON, INC.

           NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

 15. RELATED PARTIES (Continued)

        Consulting Agreements

      In May 2010, the Company entered into consulting agreements with the Samwers, pursuant to which they advise CityDeal, the
 Company's European subsidiary, with respect to its goals and spend at least fifty-percent of their work hours consulting for CityDeal.
 The Company reimburses the Samwers for travel and other expenses incurred in connection with their service to the Company. They
 do not receive any additional compensation from the Company in connection with their consulting roles. The terms of their consulting
 agreements expire in October 2011. The Company paid $0.1 million to reimburse the Samwers for travel and other expenses incurred
 for the three months ended March 31, 2011, which is classified within selling, general and administrative expenses in the condensed
 consolidated statements of operations. The Company did not have any amounts due to the Samwers as of March 31, 2011.

        Legal Services

      The Company has engaged the law firm of Lefkofsky & Gorosh, P.C. ("L&G"), whose founder (Steven P. Lefkofsky) is the
 brother of the Company's co-founder and Executive Chairman of the Board, to provide certain legal services to the Company. The
 Company paid $0.2 million to L&G for legal services rendered for three months ended March 31, 2011. The Company did not have
 any amounts due to L&G as of March 31, 2011.

        Sublease Agreements

     The Company has entered into agreements with various companies in which certain of the Company's current and former Board
 members have direct or indirect ownership interests and, in some cases, who are also directors of these companies, pursuant to which
 the Company subleased a portion of office space in Chicago from these companies. The Company paid in total $0.1 million to these
 companies under the sublease agreements for the three months ended March 31, 2011. The Company had no amounts due to these
 companies as of March 31, 2011.

        E-Commerce King Limited Joint Venture

     In January 2011, Groupon B.V. entered into a joint venture along with Rocket Asia GmbH & Co. KG ("Rocket Asia"), an entity
 controlled by the Samwers. See Note 6 "Investments in Equity Interests."

 16. SUBSEQUENT EVENTS

       In the second quarter of 2011, the Company acquired two businesses for an aggregate purchase price of $6.4 million. The
 acquisitions were for a mobile application technology company and a collective buying power business. The primary reasons for
 these acquisitions were to expand upon the capabilities of our mobile technology and to further grow the Company's users and
 merchants and provide strategic entries into new and expanding markets.

      The acquisitions will be accounted for using the purchase method of accounting and the operations of these acquired companies
 will be included in the Company's consolidated financial statements from their respective date of the acquisition. The financial effect
 of these acquisitions, individually and in the aggregate, was not material to the Company's consolidated financial statements. Pro
 forma results of operations have not been presented because the effects of these business combinations, individually and in the
 aggregate, were not material to the Company's consolidated results of operations.

                                                                  F-73




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                           Page 228 of 269
groupon.htm                                                                                                                             6/2/11 12:35 PM


 Table of Contents


                                                         GROUPON, INC.

           NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

 16. SUBSEQUENT EVENTS (Continued)

      In April 2011, the Company also entered into an agreement to purchase additional interests in one of its subsidiaries for an
 aggregate purchase price of $21.1 million, increasing its total ownership in the subsidiary to 100%. The purchase price consisted of
 $10.0 million of cash and $11.1 million in stock, a portion of which will be paid out at a future date.

                                                                F-74




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                        Page 229 of 269
groupon.htm                                                                                                                               6/2/11 12:35 PM


 Table of Contents

                                                      CityDeal Europe GmbH

                                                   Report of Independent Auditors

 The Management Board of Groupon Europe GmbH (formerly named CityDeal Europe GmbH)

     We have audited the accompanying consolidated statements of operations, comprehensive loss and cash flows of CityDeal
 Europe GmbH for the period from January 1, 2010 to May 15, 2010. The statements of operations, comprehensive loss and cash
 flows are the responsibility of the Company's management. Our responsibility is to express an opinion on the statements of operations,
 comprehensive loss and cash flows based on our audit.

      We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require
 that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
 misstatement. We were not engaged to perform an audit of the Company's internal control over financial reporting. Our audit included
 consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the
 circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial
 reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the
 amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by
 management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our
 opinion.

      In our opinion, the statements of operations, comprehensive loss and cash flows referred to above present fairly, in all material
 respects, the consolidated results of operations and cash flows of CityDeal Europe GmbH for the period January 1, 2010 to May 15,
 2010, in conformity with U.S. generally accepted accounting principles.

 /s/ Ernst & Young GmbH
 Wirtschaftsprüfungsgesellschaft
 Berlin, Germany
 May 31, 2011

              /s/ Jantz                         /s/ Stander
              (Jantz)                           (Stander)
              Certified Public Accountant       Wirtschaftsprüfer

                                                                 F-75




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                          Page 230 of 269
groupon.htm                                                                                                            6/2/11 12:35 PM


 Table of Contents


                                                     CITYDEAL EUROPE GMBH

                         CONSOLIDATED STATEMENT OF OPERATIONS AND CONSOLIDATED
                                   STATEMENT OF COMPREHENSIVE LOSS

                                                     (in thousands of US dollars)

                                                                                                   Period from
                                                                                                January 1, 2010 to
                                                                                                  May 15, 2010
              Consolidated Statement of Operations
              Revenue                                                                          $              8,419
              Cost of revenue                                                                                 9,211
              Gross profit                                                                                     (792)

              Operating expenses:
               Marketing                                                                                    6,784
               Selling, general and administrative                                                         13,034
                  Total operating expenses                                                                 19,818
              Loss from operations                                                                        (20,610)
              Interest and other expense, net                                                                 243
              Loss before provision for income taxes                                                      (20,853)
              Income taxes                                                                                     —
              Net loss                                                                         $          (20,853)
              Attributable to CityDeal Europe GmbH                                                        (16,613)
              Attributable to noncontrolling interest                                                      (4,240)
                                                                                               $          (20,853)
              Consolidated Statement of Comprehensive Loss
              Net loss                                                                                    (20,853)
              Currency translation adjustment (net of $0 tax)                                                 512
              Comprehensive loss                                                               $          (20,341)
              Attributable to CityDeal Europe GmbH—
              Currency translation adjustment                                                                 512
              Comprehensive loss                                                                          (16,101)
              Attributable to noncontrolling interest—
              Currency translation adjustment                                                                  —
              Comprehensive loss                                                                           (4,240)

                      See Notes to Consolidated Statements of Operations, Comprehensive Loss and Cash Flows

                                                                 F-76




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                       Page 231 of 269
groupon.htm                                                                                                             6/2/11 12:35 PM


 Table of Contents


                                                    CITYDEAL EUROPE GMBH

                                       CONSOLIDATED STATEMENT OF CASH FLOWS

                                                     (in thousands of US dollars)

                                                                                                       Period from
                                                                                                     January 1, 2010
                                                                                                     to May 15, 2010
              Operating activities
              Net loss                                                                           $          (20,853)
              Adjustments to reconcile net loss to net cash used in operating activities:
                Depreciation and amortization                                                                     25
                Stock-based compensation                                                                         612
                Accrued interest                                                                                  61
                Change in assets and liabilities:
                  Accounts receivable                                                                        (3,538)
                  Prepaid expenses and other current assets                                                  (4,979)
                  Accounts payable                                                                            1,952
                  Accrued merchant payable                                                                    6,935
                  Accrued expenses and other current liabilities                                              4,341
              Net cash used in operating activities                                                         (15,444)
              Investing activities
              Purchases of property and equipment                                                               (736)
              Purchases of intangible assets                                                                     (71)
              Net cash used in investing activities                                                             (807)
              Financing activities
              Proceeds from issuance of shares                                                               12,605
              Cost of issuance of shares                                                                        (64)
              Cash received from loans from related parties                                                  17,113
              Repayments of loans from related parties                                                       (8,579)
              Net cash provided by financing activities                                                      21,075

              Effect of exchange rate changes on cash and cash equivalents                                      (266)

              Net increase in cash and cash equivalents                                                        4,558

              Cash and cash equivalents, beginning of year                                                       183
              Cash and cash equivalents, end of year                                             $             4,741
              Interest paid                                                                      $                —
              Income taxes paid                                                                  $                —

                       See Notes to Consolided Statements of Operations, Comprehensive Loss and Cash Flows

                                                                  F-77




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                        Page 232 of 269
groupon.htm                                                                                                                                  6/2/11 12:35 PM


 Table of Contents


                                                        CityDeal Europe GmbH

                                  NOTES TO CONSOLIDATED STATEMENTS OF OPERATIONS,
                                         COMPREHENSIVE LOSS AND CASH FLOWS

 1. DESCRIPTION OF BUSINESS

     CityDeal Europe GmbH ("CityDeal"), together with its subsidiaries through which it conducts business, is a collective buying
 power business that launched operations in January 2010. CityDeal uses collective buying power to offer significant discounts to
 consumers on a wide variety of local goods, services and events throughout Europe.

         CityDeal was founded in December 2009 and was a development-stage enterprise prior to commencing operations at the start of
 2010.

      CityDeal is a limited liability company under German law and is based in Berlin, Germany. CityDeal operates in various
 European countries including France, Germany, Italy and the United Kingdom.

       On May 15, 2010 CityDeal was purchased by Groupon, Inc. Groupon, Inc. acquired 100% of the stock from CityDeal
 shareholders in exchange for $0.6 million in cash and 41,400,000 shares of Groupon, Inc. Class A Voting Common Stock (valued at
 $125.4 million as of the acquisition date). The accompanying financial statements within are presented for the fiscal period prior to
 acquisition. CityDeal Europe GmbH was subsequently renamed Groupon Europe GmbH.

 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

          Basis of Presentation

       The consolidated financial statements present the consolidated results of operations and cash flows from January 1, 2010 to
 May 15, 2010, the date of acquisition by Groupon, Inc. The consolidated financial statements include the accounts of CityDeal and its
 subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. CityDeal's consolidated financial
 statements were prepared in accordance with United States generally accepted accounting principles ("U.S. GAAP"). Subsidiaries are
 fully consolidated from the date the Company obtains control and continues to be consolidated until the date that such control ceases.
 A change in ownership interest of a subsidiary, without the loss of control, is accounted for as an equity transaction. At May 15, 2010,
 all subsidiaries of CityDeal were wholly-owned.

          Use of Estimates

      The preparation of financial statements in conformity with U.S. GAAP requires estimates and assumptions that affect the
 reported amounts and classifications of assets and liabilities, revenues and expenses in the consolidated financial statements and
 accompanying notes. Estimates are utilized for, but not limited to, stock-based compensation, income taxes, customer refunds and the
 depreciable lives of fixed assets. Actual results could differ materially from those estimates.

          Revenue Recognition

      CityDeal recognizes revenue from coupons when the following criteria are met: persuasive evidence of an arrangement exists;
 delivery has occurred; the selling price is fixed or determinable; and collectability is reasonably assured. These criteria generally are
 met when the number of customers who purchase the daily deal exceeds the predetermined threshold, based on the executed contract
 between CityDeal and its merchants. CityDeal records the gross amount it receives from coupons, excluding taxes where applicable,
 as CityDeal is the primary obligor in the transaction, and records an allowance for estimated customer refunds on total revenue
 primarily based on historical experience. CityDeal also records costs related to the associated obligation to redeem the award credits
 granted at issuance as an offset to revenue.

                                                                  F-78




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                             Page 233 of 269
groupon.htm                                                                                                                                 6/2/11 12:35 PM


 Table of Contents


                                                       CityDeal Europe GmbH

                               NOTES TO CONSOLIDATED STATEMENTS OF OPERATIONS,
                                 COMPREHENSIVE LOSS AND CASH FLOWS (Continued)

 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

        Cost of Revenue

     Cost of revenue consists of direct costs incurred to generate CityDeal's revenue, primarily the agreed-upon payments to the
 merchants. Cost of revenue components are recorded with the associated revenue and payments are made to merchants based on
 redemption of coupons by customers.

        Marketing

      Marketing expense consists primarily of online marketing costs, such as advertising on social networking sites and through
 search engines, and to a lesser extent, television and print advertising. CityDeal also records costs associated with customer
 acquisition and affiliate arrangements in marketing expense on the consolidated statement of operations. Online marketing expense is
 recognized based on the terms of the individual agreements, while other marketing expense generally is recognized in the period in
 which it is incurred.

        Stock-Based Compensation

      CityDeal measures stock-based compensation cost at fair value, net of forfeitures, and generally recognizes the corresponding
 compensation expense on a straight-line basis over the service period during which awards are expected to vest. CityDeal includes
 stock-based compensation expense in the selling, general and administrative expenses in the consolidated statement of operations and
 includes the offset to additional paid in capital on the balance sheet. The fair value of restricted stock is determined based on
 valuations of CityDeal's stock at or around the grant date. See Note 5 "Stock-Based Compensation."

        Foreign Currency

     The functional currencies of CityDeal and its subsidiaries are the local currencies of countries in which CityDeal operates,
 primarily the Euro and the British Pound. The Company's reporting currency is the U.S. dollar.

       Balance sheet accounts are translated from foreign currencies into U.S. dollars at the exchange rates as of the consolidated
 balance sheet date. Revenues and expenses are translated at average exchange rates during the period. Foreign currency translation
 gains or losses are included in accumulated other comprehensive income in stockholders' deficit. Gains and losses resulting from
 foreign currency transactions, which are denominated in currencies other than the entity's functional currency, are included in interest
 and other expense, net on the consolidated statement of operations.

        Cash and Cash Equivalents

     CityDeal considers all highly-liquid investments with an original maturity of three months or less from the date of purchase to be
 cash equivalents.

        Receivables, net

      Accounts receivable primarily represent the net cash due from CityDeal's credit card and other payment processors for cleared
 transactions. The carrying amount of CityDeal's receivables is reduced by an allowance for doubtful accounts that reflects
 management's best estimate of amounts that will not be collected. Accounts receivable are charged off against the allowance for
 doubtful accounts when it is

                                                                  F-79




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                            Page 234 of 269
groupon.htm                                                                                                                                 6/2/11 12:35 PM


 Table of Contents


                                                        CityDeal Europe GmbH

                               NOTES TO CONSOLIDATED STATEMENTS OF OPERATIONS,
                                 COMPREHENSIVE LOSS AND CASH FLOWS (Continued)

 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 determined that the receivable is uncollectible. CityDeal's allowance for doubtful accounts and related bad debt expense were
 insignificant as of May 15, 2010.

        Inventory

     Inventories are stated at the lower of cost or market, with cost determined on a purchase cost specific identification basis.

        Property and Equipment, net

     Property and equipment includes assets such as furniture and fixtures, external software, and office and telephone equipment.
 CityDeal accounts for property and equipment at cost less accumulated depreciation and amortization. Depreciation and amortization
 expense are recorded on a straight-line basis over the estimated useful lives of the assets (generally three years for computer hardware
 and office and telephone equipment and five years for furniture and fixtures) and are classified within selling, general and
 administrative expenses in CityDeal's consolidated statement of operations.

      CityDeal performs a review for the impairment or disposal of long-lived assets whenever events or changes in circumstances
 indicate that the carrying amount of the assets might not be recoverable. Conditions that would necessitate an impairment assessment
 include a significant decline in the observable market value of an asset, a significant change in the extent or manner in which an asset
 is used, or any other significant adverse change that would indicate that the carrying amount of an asset or group of assets may not be
 recoverable. CityDeal did not identify any long-lived asset impairments for the period ending May 15, 2010.

        Lease Obligations

      CityDeal categorizes leases at their inception as either operating or capital leases, and may receive renewal or expansion options,
 rent holidays, and leasehold improvement and other incentives on certain lease agreements. CityDeal recognizes lease costs on a
 straight-line basis taking into account adjustments for market provisions, such as free or escalating base monthly rental payments, or
 deferred payment terms such as rent holidays that defer the commencement date of required payments. Additionally, CityDeal treats
 any incentives received as a reduction of costs over the term of the agreement. CityDeal records rent expense associated with lease
 obligations in selling, general and administrative expense on the consolidated statement of operations. See Note 3 "Commitments and
 Contingencies."

        Income Taxes

       The provision for income taxes is determined using the asset and liability method. Under this method, deferred tax assets and
 liabilities are calculated based upon the temporary differences between the financial statement and income tax bases of assets and
 liabilities using the statutory tax rates that are applicable in a given year. The deferred tax assets are recorded net of a valuation
 allowance when, based on the weight of available evidence, CityDeal believes it is more likely than not that some portion or all of the
 recorded deferred tax assets will not be realized in future periods. CityDeal considers many factors when assessing the likelihood of
 future realization of its deferred tax assets, including recent cumulative earnings experience, expectations of future taxable income
 and capital gains by taxing jurisdiction, the carry-forward periods available for tax reporting purposes, and other relevant factors.
 CityDeal allocates

                                                                   F-80




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                            Page 235 of 269
groupon.htm                                                                                                                                  6/2/11 12:35 PM


 Table of Contents


                                                        CityDeal Europe GmbH

                                NOTES TO CONSOLIDATED STATEMENTS OF OPERATIONS,
                                  COMPREHENSIVE LOSS AND CASH FLOWS (Continued)

 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 its valuation allowance to current and long-term deferred tax assets on a pro-rata basis. A change in the estimate of future taxable
 income may require an increase or decrease to the valuation allowance.

      CityDeal utilizes a two-step approach to recognizing and measuring uncertain tax positions ("tax contingencies"). The first step is
 to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that
 the position will be sustained on audit, including resolution of related appeals or litigation processes. The second step is to measure
 the tax benefit as the largest amount which is more than 50% likely to be realized upon ultimate settlement. CityDeal considers many
 factors when evaluating and estimating its tax positions and tax benefits, which may require periodic adjustments and which may not
 accurately forecast actual outcomes. CityDeal includes interest and penalties related to tax contingencies in income tax expense. See
 Note 6 "Income Taxes."

        Fair Value of Financial Instruments

      The carrying amounts of CityDeal's financial instruments, including cash and cash equivalents, accounts receivable, accounts
 payable, accrued merchant payable, and accrued expenses, approximate fair value due to their generally short-term maturities. See
 Note 8 "Fair Value Measurements" for a discussion of the terms and conditions of the related party loans payable. It was not practical
 to estimate the fair value of related party loans.

        Recent Accounting Pronouncements

      In January 2010, the FASB issued guidance that improves disclosures about fair value measures that were originally required.
 The new guidance is effective for interim and annual periods beginning after December 15, 2009, except for the disclosures about
 purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are
 effective for fiscal years beginning after December 15, 2010, and for interim periods within those years. The adoption of this
 guidance did not impact CityDeal's financial position or results of operations.

      In July 2010, the FASB issued guidance that requires providing disclosures that facilitate financial statement users' evaluation of:
 1) the nature of credit risk inherent in the entity's portfolio of financing receivables; 2) how that risk is analyzed and assessed in
 arriving at the allowance for credit losses; 3) the changes and reasons for those changes in the allowance for credit losses. The
 disclosures as of the end of a reporting period are effective for interim and annual reporting periods ending on or after December 15,
 2010. The disclosures about activity that occurs during a reporting period are effective for interim and annual reporting periods
 beginning on or after December 15, 2010. CityDeal will adopt this guidance on January 1, 2011. CityDeal does not expect this
 guidance to have a material impact on CityDeal's consolidated financial statements.

       In April 2010, the FASB issued guidance clarifying that an employee share-based payment award with an exercise price
 denominated in the currency of a market in which a substantial portion of the entity's equity securities trades should not be considered
 to contain a condition that is not a market, performance, or service condition. Therefore, an entity would not classify such an award as
 a liability if it otherwise qualifies as equity. This guidance is effective for interim and annual reporting periods beginning after
 December 15, 2010. CityDeal will adopt this guidance on January 1, 2011. CityDeal does not expect this guidance to have a material
 impact on CityDeal's consolidated financial statements.

                                                                  F-81




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                             Page 236 of 269
groupon.htm                                                                                                                                6/2/11 12:35 PM


 Table of Contents


                                                       CityDeal Europe GmbH

                               NOTES TO CONSOLIDATED STATEMENTS OF OPERATIONS,
                                 COMPREHENSIVE LOSS AND CASH FLOWS (Continued)

 3. COMMITMENTS AND CONTINGENCIES

        Operating Leases

      CityDeal has entered into various non-cancellable operating lease agreements, primarily covering certain of its offices
 throughout Europe, with original lease periods expiring between 2011 and 2012. Rent expense under these operating leases was
 $0.3 million for the period ended May 15, 2010.

       Certain of these arrangements have renewal or expansion options and adjustments for market provisions, such as free or
 escalating base monthly rental payments. CityDeal recognizes rent expense under such arrangements on the straight-line basis over
 the term of the lease. The difference between the straight-line expense and the cash paid for rent has been recorded as deferred rent.

      CityDeal is responsible for paying its proportionate share of the actual operating expenses and real estate taxes under certain of
 these lease agreements. These operating expenses are not included in the table below.

       As of May 15, 2010, future payments under non-cancellable operating leases (including rent escalation clauses) were as follows
 (in thousands):

                           Year Ended December 31,
                              2010 (remaining period)                                              $ 257
                              2011                                                                   374
                              2012                                                                   136
                              2013                                                                    —
                              2014                                                                    —
                              2015                                                                    —
                            Thereafter                                                                —
                                                                                                   $ 767

        Legal Matters

      CityDeal believes that there are no matters outstanding that will have a material adverse effect on its business, consolidated
 financial position, results of operations, or cash flows. CityDeal may become party to litigation resulting from the ordinary course of
 business. In such an instance CityDeal would assess the likelihood of any adverse judgments or outcomes with respect to potential
 matters and determine loss contingency assessments on a gross basis after assessing the probability of incurrence of a loss and whether
 a loss is reasonably estimable. In addition, CityDeal would consider other relevant factors that could impact its ability to reasonably
 estimate a loss. A determination of the amount of reserves required, if any, for such contingencies would be made after analyzing each
 matter.

 4. STOCKHOLDERS' DEFICIT

       CityDeal sold an aggregate amount of 25,000 shares of common stock to one investor, Rocket Internet GmbH, a German limited
 liability company ("Rocket") and used the proceeds from the sale for working capital and general corporate purposes.

                                                                  F-82




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                           Page 237 of 269
groupon.htm                                                                                                                                 6/2/11 12:35 PM


 Table of Contents


                                                       CityDeal Europe GmbH

                               NOTES TO CONSOLIDATED STATEMENTS OF OPERATIONS,
                                 COMPREHENSIVE LOSS AND CASH FLOWS (Continued)

 4. STOCKHOLDERS' DEFICIT (Continued)

 Common Stock

       The board of directors (the "Board") of CityDeal has authorized one class of voting common stock. As of May 15, 2010 there
 were 25,000 shares authorized, issued and outstanding of voting common stock, respectively. Each share of voting common stock is
 entitled to one vote per share. Voting common stock is referred to as common stock throughout the notes to these financial
 statements, unless otherwise noted.

      CityDeal issued stock-based awards to its employees in the form of restricted stock, which have the potential to increase the
 outstanding shares of common stock. See Note 5 "Stock-based Compensation."

       Upon any liquidation, dissolution or winding up of CityDeal (a "liquidation event"), the remaining assets of CityDeal will be
 distributed ratably among holders of common stock only after the payment of the full Series B Preferred Stock ("Series B Preferred")
 liquidation preference and Series A Preferred Stock ("Series A Preferred") liquidation preference has been satisfied.

 Preferred Stock

      CityDeal has 13,656 of authorized shares of Series A Preferred Stock and 7,732 of authorized shares of Series B Preferred Stock
 as of May 15, 2010. The rights, preferences, privileges, restrictions and other matters relating to the Series Preferred are as follows.

 Series A Preferred

      In February 2010, CityDeal authorized the sale and issuance of 5,934 shares of Series A Preferred for $3.1 million. In March
 2010, CityDeal authorized the sale and issuance of 7,722 Series A Preferred for $2.7 million. The proceeds were used for working
 capital and general corporate purposes. There were 13,656 shares outstanding as of May 15, 2010.

      Holders of Series A Preferred are entitled to the number of votes equal to the number of shares held. In addition, the Series A
 Preferred holders are entitled to receive, upon a liquidation event, the amount equal to the amount of contributions made by the
 holders of Series A. If, upon the liquidating event, the assets of CityDeal are insufficient to fully pay the amounts owed to Series A
 Preferred holders, all distributions would be made ratably in proportion to the full amounts to which holders would have otherwise
 been entitled.

      The holders of Series A Preferred are also entitled to receive any dividend declared by the Board, by participating equally with
 the holders of common stock and the holders of Series B Preferred.

 Series B Preferred

     In March 2010, CityDeal authorized the sale and issuance of 7,732 shares of Series B Preferred for $6.7 million. The proceeds
 were used for working capital and general corporate purposes. There were 7,732 shares outstanding as of May 15, 2010.

      Holders of Series B Preferred are entitled to the number of votes equal to the number of shares held. In addition, the Series B
 Preferred holders are entitled to receive, upon a liquidation event, the amount equal to the amount of contributions made by the
 holders of Series B. If, upon the liquidating event, the assets of CityDeal are insufficient to fully pay the amounts owed to Series B
 Preferred holders, all

                                                                  F-83




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                            Page 238 of 269
groupon.htm                                                                                                                                6/2/11 12:35 PM


 Table of Contents


                                                       CityDeal Europe GmbH

                               NOTES TO CONSOLIDATED STATEMENTS OF OPERATIONS,
                                 COMPREHENSIVE LOSS AND CASH FLOWS (Continued)

 4. STOCKHOLDERS' DEFICIT (Continued)

 distributions would be made ratably in proportion to the full amounts to which holders would have otherwise been entitled.

      The holders of Series B Preferred are also entitled to receive any dividend declared by the Board, by participating equally with
 the holders of common stock and the holders of Series A Preferred.

 Dividends

     No dividends were declared during the period from January 1, 2010 to May 15, 2010.

 5. STOCK-BASED COMPENSATION

       In the period from January 1, 2010 to May 15, 2010, CityDeal granted certain employees restricted stock awards in subsidiaries
 of CityDeal, in return for employee services to be rendered. The restricted stock awards vest quarterly over a requisite service period
 up to three years, with an initial cliff vesting term between three and six months. In the case of two employees, the restricted stock
 awards were granted with immediate vesting, in return for employee services previously rendered. There were 3,509 shares of
 restricted stock awards granted during the period from January 1, 2010 to May 15, 2010 with a weighted-average grant date fair value
 of $748.38 per share, which is amortized on a straight-line basis over the requisite service period as a component of employee
 compensation expense. The offset to the restricted stock award expense is classified as a component of additional paid-in capital
 within stockholders' deficit.

      The table below summarizes activity regarding unvested restricted stock awards granted to employees during the period from
 January 1, 2010 to May 15, 2010:

                                                                                       Weighted-Average
                                                                         Restricted   Grant Date Fair Value
                                                                           Stock           (per share)
                           Unvested at January 1, 2010                       3,065    $               5.57
                            Granted                                          3,509    $             748.38
                            Vested                                            (205)   $             403.26
                            Forfeited                                       (3,065)   $               5.57
                           Unvested at May 15, 2010                          3,304    $             783.19

     The fair value of restricted stock that vested during the period from January 1, 2010 to May 15, 2010 was $0.1 million. CityDeal
 recognized stock compensation expense for restricted stock awards granted to employees of $0.2 million for the period from
 January 1, 2010 to May 15, 2010, none of which provided CityDeal with a tax benefit as a result of a full valuation allowance on
 deferred tax assets. As of May 15, 2010, a total of $9.4 million of unrecognized compensation costs related to unvested restricted
 stock awards granted to employees are expected to be recognized over the remaining weighted average period of 2.7 years.

       In the period from January 1, 2010 to May 15, 2010 CityDeal awarded certain non-employees (managers of Rocket and the
 Rocket parent company the European Founders Fund GmbH) with fully-vested restricted stock awards in subsidiaries of CityDeal, in
 return for consulting services received. There were awards for 399 shares of fully-vested restricted stock granted to non-employees
 during the period from January 1, 2010 to May 15, 2010 with a cumulative grant date fair value of $0.4 million which were

                                                                  F-84




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                           Page 239 of 269
groupon.htm                                                                                                                                  6/2/11 12:35 PM


 Table of Contents


                                                        CityDeal Europe GmbH

                                NOTES TO CONSOLIDATED STATEMENTS OF OPERATIONS,
                                  COMPREHENSIVE LOSS AND CASH FLOWS (Continued)

 5. STOCK-BASED COMPENSATION (Continued)



 recognized as a component of consulting expense in the income statement upon issuance. The offset to the restricted stock award
 expense is classified as a component of additional paid-in capital within stockholders' deficit. CityDeal did not recognize a tax benefit
 associated with the restricted stock awards granted to non-employees as a result of a full valuation allowance on deferred tax assets.

     The fair value of the restricted stock awards granted to employees and non-employees was determined by reference to the terms
 and conditions of the capital increases during the period January 1, 2010 to May 15, 2010 (See Note 4 "Stockholders' Deficit"), as
 well as by the reference to the information available in connection with the CityDeal's acquisition by Groupon, Inc. on May 15, 2010.

      On May 14, 2010 and to facilitate the CityDeal's acquisition by Groupon Inc. (see Note 10 "Subsequent Events"), all share-based
 awards granted to employees and nonemployees in CityDeal subsidiaries were proportionately exchanged for share-based awards in
 CityDeal. With the exception of changing the legal entity with which the share-based awards are associated, no other terms and
 conditions of the original awards granted in CityDeal subsidiaries were changed as a result of the exchange. The exchange of fully-
 vested share-based awards in CityDeal subsidiaries was accounted for as the acquisition of all outstanding non-controlling interests in
 the CityDeal subsidiaries. The exchange of unvested share-based awards in CityDeal subsidiaries for unvested share-based awards in
 CityDeal was accounted for as a modification on the date of exchange, with the additional fair value of the unvested share-based
 awards granted being recognized over the remaining requisite service period.

 6. INCOME TAXES

     The components of pretax loss for the period are as follows (in thousands):

                                                                                           Period from January 1, 2010
                                                                                                  to May 15, 2010
                                                                                                        Provision for income
                                                                                       Loss before              taxes
                                                                                      provision for
                                                                                      income taxes     Current       Deferred
              Germany                                                                $      (9,225) $        — $           —
              International                                                                (11,628)          —             —
              Loss before provision of income taxes                                  $     (20,853) $        — $           —

     The items accounting for differences between income taxes computed at the statutory rate and the provision for income taxes
 were as follows:

                                                                                           Period from
                                                                                         January 1, 2010
                                                                                         to May 15, 2010
                            Statutory income tax rate                                                 30.2%
                              Valuation allowance                                                    (30.2)%
                            Total provision for income taxes                                            —%

     At May 15, 2010, CityDeal had $21.5 million of operating loss carryforwards, which will carryforward indefinitely.

                                                                  F-85




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                             Page 240 of 269
groupon.htm                                                                                                                                  6/2/11 12:35 PM


 Table of Contents


                                                        CityDeal Europe GmbH

                                NOTES TO CONSOLIDATED STATEMENTS OF OPERATIONS,
                                  COMPREHENSIVE LOSS AND CASH FLOWS (Continued)

 6. INCOME TAXES (Continued)

     For all tax jurisdictions, all fiscal periods from the commencement of business starting in 2009 are subject to tax audits.

      No accrual has been recorded at January 1, 2010 nor at May 15, 2010 for uncertain tax positions and no provision for uncertain
 tax positions has been recorded for the period from January 1, 2010 to May 15, 2010.

 7. CONCENTRATION RISKS

      CityDeal is potentially subject to financial instrument concentration of credit risk through its cash equivalents and trade accounts
 receivable. CityDeal performs evaluations of the relative credit standing of these financial institutions and limits the amount of credit
 exposure with any one institution. A significant amount of accounts receivable is with several payment and credit card processing
 service providers in Europe.

      For the period from January 1, 2010 to May 15, 2010, revenue of $6.0 million was transacted in Germany and the remaining
 revenue of $2.8 million arose in other locations within Europe.

 8. FAIR VALUE MEASUREMENTS

       Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an
 orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that
 should be determined based on assumptions that market participants would use in pricing an asset or a liability.

      To increase the comparability of fair value measures, the following hierarchy prioritizes the inputs to valuation methodologies
 used to measure fair value:

        Level 1—Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

        Level 2—Include other inputs that are directly or indirectly observable in the marketplace.

        Level 3—Unobservable inputs that are supported by little or no market activities. Valuations derived from valuation
        techniques in which one or more significant inputs or significant value drivers are unobservable, such as pricing models,
        discounted cash flow models and similar techniques not based on market, exchange, dealer or broker-traded transactions.

      In determining fair value, CityDeal uses various valuation approaches within the fair value measurement framework. The
 valuation methodologies used for CityDeal's instruments measured at fair value and their classification in the valuation hierarchy are
 summarized below:

        Cash equivalents—Cash equivalents primarily consisted of highly-rated commercial paper and money market funds. The
        Company classified cash equivalents as Level 1, due to their short-term maturity, and measured the fair value based on quoted
        prices in active markets for identical assets.

                                                                   F-86




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                             Page 241 of 269
groupon.htm                                                                                                                               6/2/11 12:35 PM


 Table of Contents


                                                       CityDeal Europe GmbH

                               NOTES TO CONSOLIDATED STATEMENTS OF OPERATIONS,
                                 COMPREHENSIVE LOSS AND CASH FLOWS (Continued)

 8. FAIR VALUE MEASUREMENTS (Continued)

     The following table summarizes CityDeal's assets that are measured at fair value on a recurring basis (in thousands):

                                                                      Fair Value Measurement at Reporting Date Using
                                                              Quoted Prices in Active   Significant Other       Significant
                                                As of          Markets for Identical    Observable Inputs      Unobservable
              Description                    May 15, 2010        Assets (Level 1)           (Level 2)         Inputs (Level 3)
              Assets:
               Cash equivalents              $      4,741 $                    4,741 $                   — $                —

      There were no changes to CityDeal's valuation techniques used to measure asset and liability fair values on a recurring basis for
 the period of January 1, 2010 through May 15, 2010.

     At May 15, 2010 there were no material fair value adjustments required for non-financial assets and liabilities.

 9. RELATED PARTIES

 Shareholder Loans

       CityDeal and its shareholders entered into several loan agreements starting in March 2010, whereby certain CityDeal
 shareholders provided cash to fund operational and working capital needs of the business. During the period from January 1, 2010 to
 May 15, 2010, CityDeal received $17.1 million of proceeds from shareholders, of which $8.5 million was outstanding as of May 15,
 2010. The outstanding balance accrues interest at a rate of 5% per year and is payable upon termination of the facility, which is the
 earlier of any prepayments or December 2012. As of May 15, 2010, the accrued interest was insignificant.

 Consulting

       CityDeal purchased administrative and other consulting services from CityDeal shareholders during the period from January 1,
 2010 to May 15, 2010 with expenses for the period of $1.1 million. In addition, in conjunction with such consulting services,
 CityDeal awarded certain employees who were shareholders restricted stock in subsidiaries of CityDeal. There were 399 shares of
 restricted stock granted during the period from January 1, 2010 to May 15, 2010 with a grant date fair value of $0.4 million, which
 was recognized as consulting expense in the consolidated statement of operations.

 10. SUBSEQUENT EVENTS

      CityDeal has evaluated subsequent events through May 31, 2011, the date the consolidated financial statements were available to
 be issued.

                                                                  F-87




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                          Page 242 of 269
groupon.htm                                                                                                                                       6/2/11 12:35 PM


 Table of Contents

                                                     Report of Independent Auditors

 The Board of Directors
 Groupon Japan, Inc. (formerly known as Qpod.inc)

      We have audited the accompanying statement of operations, stockholders' equity, and cash flows of Qpod.inc (the "Company")
 for the period from June 4, 2010 to August 11, 2010. These financial statements are the responsibility of the Company's management.
 Our responsibility is to express an opinion on these financial statements based on our audit.

      We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require
 that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
 misstatement. We were not engaged to perform an audit of the Company's internal control over financial reporting. Our audit included
 consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the
 circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial
 reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the
 amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by
 management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our
 opinion.

      In our opinion, the financial statements referred to above present fairly, in all material respects, the result of its operations and its
 cash flows of Qpod.inc for the period from June 4, 2010 to August 11, 2010 in conformity with U.S. generally accepted accounting
 principles.

 /s/ Ernst & Young ShinNihon LLC

 Tokyo, Japan
 May 25, 2011

                                                                     F-88




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                                                                  Page 243 of 269
groupon.htm                                                                                             6/2/11 12:35 PM


 Table of Contents


                                                              QPOD.INC

                                                STATEMENT OF OPERATIONS

                                                     (in thousands of Japanese Yen)

                                                                                       Period from
                                                                                      June 4, 2010 to
                                                                                      August 11, 2010
              Revenue                                                                 ¥       23,099
              Cost of revenue                                                                 19,329
              Gross profit                                                                     3,770

              Operating expenses:
               Marketing                                                                      57,304
               Selling, general and administrative                                            89,679
                  Total operating expenses                                                   146,983
              Loss from operations                                                          (143,213)
              Interest and other expenses, net                                                  (328)
              Loss before provision for income taxes                                        (143,541)
              Provision for income taxes                                                      (2,543)
              Net loss                                                                ¥     (146,084)

                                                 See Notes to Financial Statements.

                                                                  F-89




file:///Users/arikhesseldahl/Desktop/groupon.htm                                                        Page 244 of 269
groupon.htm